Correlation Between Aozora Bank and Absa Group

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

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

Diversification Opportunities for Aozora Bank and Absa Group

0.22

Correlation Coefficient

Aozora Bank  Absa Group

Modest diversification

The 3 months correlation between Aozora and Absa is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Aozora Bank Ltd and Absa Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group Limited and Aozora Bank 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 Aozora Bank Ltd are associated (or correlated) with Absa Group. 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 Limited has no effect on the direction of Aozora Bank i.e., Aozora Bank and Absa Group go up and down completely randomly.

Pair Corralation between Aozora Bank and Absa Group

Assuming the 90 days horizon Aozora Bank is expected to generate 24.78 times less return on investment than Absa Group. But when comparing it to its historical volatility, Aozora Bank Ltd is 3.07 times less risky than Absa Group. It trades about 0.01 of its potential returns per unit of risk. Absa Group Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  383.00  in Absa Group Limited on September 4, 2024 and sell it today you would earn a total of  428.00  from holding Absa Group Limited or generate 111.75% return on investment over 90 days.

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

Aozora Bank Ltd  vs.  Absa Group Limited

Aozora Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aozora Bank Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Aozora Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Aozora Bank and Absa Group

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

The idea behind Aozora Bank Ltd and Absa Group Limited 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 Anywhere module to track or share privately all of your investments from the convenience of any device.