Correlation Between Coreshares Index and ABSA Bank

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

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

Diversification Opportunities for Coreshares Index and ABSA Bank

0.43

Correlation Coefficient

Coreshares Index  ABSA Bank

Very weak diversification

The 3 months correlation between Coreshares and ABSA is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Coreshares Index Tracker and ABSA Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABSA Bank Limited and Coreshares Index 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 Coreshares Index Tracker are associated (or correlated) with ABSA Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABSA Bank Limited has no effect on the direction of Coreshares Index i.e., Coreshares Index and ABSA Bank go up and down completely randomly.

Pair Corralation between Coreshares Index and ABSA Bank

Assuming the 90 days trading horizon Coreshares Index is expected to generate 2.04 times less return on investment than ABSA Bank. But when comparing it to its historical volatility, Coreshares Index Tracker is 1.04 times less risky than ABSA Bank. It trades about 0.05 of its potential returns per unit of risk. ABSA Bank Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,145,000  in ABSA Bank Limited on September 12, 2024 and sell it today you would earn a total of  485,100  from holding ABSA Bank Limited or generate 5.96% return on investment over 90 days.

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

Coreshares Index Tracker  vs.  ABSA Bank Limited

Coreshares Index Tracker

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Coreshares Index Tracker are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Coreshares Index is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ABSA Bank Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ABSA 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 Coreshares Index and ABSA Bank

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

The idea behind Coreshares Index Tracker and ABSA Bank 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.