Correlation Between Absa Group and Danske Bank

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

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

Diversification Opportunities for Absa Group and Danske Bank

-0.58

Correlation Coefficient

Absa Group  Danske Bank

Excellent diversification

The 3 months correlation between Absa and Danske is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group Limited and Danske Bank AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danske Bank AS and Absa Group 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 Group Limited are associated (or correlated) with Danske Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danske Bank AS has no effect on the direction of Absa Group i.e., Absa Group and Danske Bank go up and down completely randomly.

Pair Corralation between Absa Group and Danske Bank

Assuming the 90 days horizon Absa Group Limited is expected to generate 0.46 times more return on investment than Danske Bank. However, Absa Group Limited is 2.18 times less risky than Danske Bank. It trades about 0.12 of its potential returns per unit of risk. Danske Bank AS is currently generating about -0.08 per unit of risk. If you would invest  772.00  in Absa Group Limited on September 2, 2024 and sell it today you would earn a total of  39.00  from holding Absa Group Limited or generate 5.05% return on investment over 90 days.

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

Absa Group Limited  vs.  Danske Bank AS

Absa Group Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Absa Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Danske Bank AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danske Bank AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Absa Group and Danske Bank

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

The idea behind Absa Group Limited and Danske Bank AS 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.