Correlation Between ABSA Bank and Wilson Bayly

Can any of the company-specific risk be diversified away by investing in both ABSA Bank and Wilson Bayly at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ABSA Bank and Wilson Bayly into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ABSA Bank Limited and Wilson Bayly Holmes, you can compare the effects of market volatilities on ABSA Bank and Wilson Bayly and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ABSA Bank with a short position of Wilson Bayly. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and Wilson Bayly.

Diversification Opportunities for ABSA Bank and Wilson Bayly

-0.63

Correlation Coefficient

ABSA Bank  Wilson Bayly

Excellent diversification

The 3 months correlation between ABSA and Wilson is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Wilson Bayly Holmes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilson Bayly Holmes and ABSA Bank is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ABSA Bank Limited are associated (or correlated) with Wilson Bayly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilson Bayly Holmes has no effect on the direction of ABSA Bank i.e., ABSA Bank and Wilson Bayly go up and down completely randomly.

Pair Corralation between ABSA Bank and Wilson Bayly

Assuming the 90 days trading horizon ABSA Bank is expected to generate 17.81 times less return on investment than Wilson Bayly. But when comparing it to its historical volatility, ABSA Bank Limited is 1.76 times less risky than Wilson Bayly. It trades about 0.01 of its potential returns per unit of risk. Wilson Bayly Holmes is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  929,000  in Wilson Bayly Holmes on September 23, 2024 and sell it today you would earn a total of  1,270,800  from holding Wilson Bayly Holmes or generate 136.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

ABSA Bank Limited  vs.  Wilson Bayly Holmes

ABSA Bank Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ABSA Bank is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Wilson Bayly Holmes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wilson Bayly Holmes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Wilson Bayly is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ABSA Bank and Wilson Bayly

The main advantage of trading using opposite ABSA Bank and Wilson Bayly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABSA Bank position performs unexpectedly, Wilson Bayly can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Wilson Bayly will offset losses from the drop in Wilson Bayly's long position.

The idea behind ABSA Bank Limited and Wilson Bayly Holmes pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.