Correlation Between Allied Electronics and Standard Bank

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

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

Diversification Opportunities for Allied Electronics and Standard Bank

0.53

Correlation Coefficient

Allied Electronics  Standard Bank

Very weak diversification

The 3 months correlation between Allied and Standard is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Allied Electronics and Standard Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Bank 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 Standard Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Bank Group has no effect on the direction of Allied Electronics i.e., Allied Electronics and Standard Bank go up and down completely randomly.

Pair Corralation between Allied Electronics and Standard Bank

Assuming the 90 days trading horizon Allied Electronics is expected to generate 42.84 times less return on investment than Standard Bank. But when comparing it to its historical volatility, Allied Electronics is 62.14 times less risky than Standard Bank. It trades about 0.18 of its potential returns per unit of risk. Standard Bank Group is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  66.00  in Standard Bank Group on October 7, 2024 and sell it today you would earn a total of  6,434  from holding Standard Bank Group or generate 9748.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.19%
Values	Daily Returns

Allied Electronics  vs.  Standard Bank Group

Allied Electronics

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Electronics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Allied Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Standard Bank Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Bank Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Standard Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Allied Electronics and Standard Bank

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

The idea behind Allied Electronics and Standard Bank 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.