Correlation Between Absa Group and Standard Bank

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

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

Diversification Opportunities for Absa Group and Standard Bank

-0.51

Correlation Coefficient

Absa Group  Standard Bank

Excellent diversification

The 3 months correlation between Absa and Standard is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group Ltd 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 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 Ltd 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 Absa Group i.e., Absa Group and Standard Bank go up and down completely randomly.

Pair Corralation between Absa Group and Standard Bank

Assuming the 90 days horizon Absa Group Ltd is expected to generate 1.46 times more return on investment than Standard Bank. However, Absa Group is 1.46 times more volatile than Standard Bank Group. It trades about -0.18 of its potential returns per unit of risk. Standard Bank Group is currently generating about -0.39 per unit of risk. If you would invest  2,226  in Absa Group Ltd on October 11, 2024 and sell it today you would lose (145.00) from holding Absa Group Ltd or give up 6.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Absa Group Ltd  vs.  Standard Bank Group

Absa Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Absa Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Standard Bank Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Bank Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Absa Group and Standard Bank

The main advantage of trading using opposite Absa Group and Standard Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absa Group 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 Absa Group Ltd 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.