Correlation Between Blue Label and ABSA Bank

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

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

Diversification Opportunities for Blue Label and ABSA Bank

-0.85

Correlation Coefficient

Blue Label  ABSA Bank

Pay attention - limited upside

The 3 months correlation between Blue and ABSA is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Blue Label Telecoms 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 Blue Label 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 Blue Label Telecoms 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 Blue Label i.e., Blue Label and ABSA Bank go up and down completely randomly.

Pair Corralation between Blue Label and ABSA Bank

Assuming the 90 days trading horizon Blue Label Telecoms is expected to generate 1.78 times more return on investment than ABSA Bank. However, Blue Label is 1.78 times more volatile than ABSA Bank Limited. It trades about 0.26 of its potential returns per unit of risk. ABSA Bank Limited is currently generating about -0.08 per unit of risk. If you would invest  57,700  in Blue Label Telecoms on December 27, 2024 and sell it today you would earn a total of  19,700  from holding Blue Label Telecoms or generate 34.14% return on investment over 90 days.

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

Blue Label Telecoms  vs.  ABSA Bank Limited

Blue Label Telecoms

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Label Telecoms are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Blue Label exhibited solid returns over the last few months and may actually be approaching a breakup point.

ABSA Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days ABSA Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Blue Label and ABSA Bank

The main advantage of trading using opposite Blue Label and ABSA Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Label 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 Blue Label Telecoms 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.