Correlation Between BANK OF AFRICA and SALAFIN

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

By analyzing existing cross correlation between BANK OF AFRICA and SALAFIN, you can compare the effects of market volatilities on BANK OF AFRICA and SALAFIN 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 BANK OF AFRICA with a short position of SALAFIN. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANK OF AFRICA and SALAFIN.

Diversification Opportunities for BANK OF AFRICA and SALAFIN

0.38

Correlation Coefficient

BANK OF AFRICA  SALAFIN

Weak diversification

The 3 months correlation between BANK and SALAFIN is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding BANK OF AFRICA and SALAFIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SALAFIN and BANK OF AFRICA 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 BANK OF AFRICA are associated (or correlated) with SALAFIN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SALAFIN has no effect on the direction of BANK OF AFRICA i.e., BANK OF AFRICA and SALAFIN go up and down completely randomly.

Pair Corralation between BANK OF AFRICA and SALAFIN

Assuming the 90 days trading horizon BANK OF AFRICA is expected to generate 0.48 times more return on investment than SALAFIN. However, BANK OF AFRICA is 2.08 times less risky than SALAFIN. It trades about 0.04 of its potential returns per unit of risk. SALAFIN is currently generating about 0.01 per unit of risk. If you would invest  19,500  in BANK OF AFRICA on October 25, 2024 and sell it today you would earn a total of  1,490  from holding BANK OF AFRICA or generate 7.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.49%
Values	Daily Returns

BANK OF AFRICA  vs.  SALAFIN

BANK OF AFRICA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BANK OF AFRICA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, BANK OF AFRICA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

SALAFIN

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SALAFIN are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, SALAFIN is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BANK OF AFRICA and SALAFIN

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

The idea behind BANK OF AFRICA and SALAFIN 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.