Correlation Between Allied Electronics and Absa

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

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

Diversification Opportunities for Allied Electronics and Absa

0.69

Correlation Coefficient

Allied Electronics  Absa

Poor diversification

The 3 months correlation between Allied and Absa is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Allied Electronics and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and Allied Electronics 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 Allied Electronics 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 Allied Electronics i.e., Allied Electronics and Absa go up and down completely randomly.

Pair Corralation between Allied Electronics and Absa

Assuming the 90 days trading horizon Allied Electronics is expected to generate 1.52 times more return on investment than Absa. However, Allied Electronics is 1.52 times more volatile than Absa Group. It trades about 0.14 of its potential returns per unit of risk. Absa Group is currently generating about 0.07 per unit of risk. If you would invest  93,500  in Allied Electronics on October 5, 2024 and sell it today you would earn a total of  128,700  from holding Allied Electronics or generate 137.65% return on investment over 90 days.

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

Allied Electronics  vs.  Absa Group

Allied Electronics

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Electronics are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Allied Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Absa Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Absa may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Allied Electronics and Absa

The main advantage of trading using opposite Allied Electronics and Absa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Electronics 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 Allied Electronics 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.