Correlation Between African Media and Absa

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

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

Diversification Opportunities for African Media and Absa

0.37

Correlation Coefficient

African Media  Absa

Weak diversification

The 3 months correlation between African and Absa is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding African Media Entertainment and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and African Media 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 African Media Entertainment 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 African Media i.e., African Media and Absa go up and down completely randomly.

Pair Corralation between African Media and Absa

Assuming the 90 days trading horizon African Media Entertainment is expected to generate 5.41 times more return on investment than Absa. However, African Media is 5.41 times more volatile than Absa Group. It trades about 0.08 of its potential returns per unit of risk. Absa Group is currently generating about -0.2 per unit of risk. If you would invest  388,293  in African Media Entertainment on October 8, 2024 and sell it today you would earn a total of  16,707  from holding African Media Entertainment or generate 4.3% return on investment over 90 days.

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

African Media Entertainment  vs.  Absa Group

African Media Entert

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in African Media Entertainment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, African Media may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Absa Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Absa exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with African Media and Absa

The main advantage of trading using opposite African Media and Absa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if African Media 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 African Media Entertainment 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.