Correlation Between Advtech and Absa

Can any of the company-specific risk be diversified away by investing in both Advtech and Absa 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 Advtech and Absa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Advtech and Absa Group, you can compare the effects of market volatilities on Advtech and Absa 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 Advtech with a short position of Absa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advtech and Absa.

Diversification Opportunities for Advtech and Absa

0.18

Correlation Coefficient

Advtech  Absa

Average diversification

The 3 months correlation between Advtech and Absa is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Advtech and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and Advtech 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 Advtech are associated (or correlated) with Absa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absa Group has no effect on the direction of Advtech i.e., Advtech and Absa go up and down completely randomly.

Pair Corralation between Advtech and Absa

Assuming the 90 days trading horizon Advtech is expected to generate 1.15 times more return on investment than Absa. However, Advtech is 1.15 times more volatile than Absa Group. It trades about 0.0 of its potential returns per unit of risk. Absa Group is currently generating about -0.07 per unit of risk. If you would invest  327,500  in Advtech on December 29, 2024 and sell it today you would lose (3,200) from holding Advtech or give up 0.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Advtech  vs.  Absa Group

Advtech

Risk-Adjusted Performance

Very Weak

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

Absa Group

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Advtech and Absa

The main advantage of trading using opposite Advtech and Absa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advtech position performs unexpectedly, Absa 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 Absa will offset losses from the drop in Absa's long position.

The idea behind Advtech and Absa Group 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.