Correlation Between British Amer and ABSA Bank

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Can any of the company-specific risk be diversified away by investing in both British Amer 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 British Amer and ABSA Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and ABSA Bank Limited, you can compare the effects of market volatilities on British Amer 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 British Amer with a short position of ABSA Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of British Amer and ABSA Bank.

Diversification Opportunities for British Amer and ABSA Bank

BritishABSADiversified AwayBritishABSADiversified Away100%
0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between British and ABSA is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco 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 British Amer 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 British American Tobacco 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 British Amer i.e., British Amer and ABSA Bank go up and down completely randomly.

Pair Corralation between British Amer and ABSA Bank

Assuming the 90 days trading horizon British Amer is expected to generate 1.01 times less return on investment than ABSA Bank. In addition to that, British Amer is 1.1 times more volatile than ABSA Bank Limited. It trades about 0.1 of its total potential returns per unit of risk. ABSA Bank Limited is currently generating about 0.11 per unit of volatility. If you would invest  8,105,700  in ABSA Bank Limited on September 19, 2024 and sell it today you would earn a total of  523,600  from holding ABSA Bank Limited or generate 6.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

British American Tobacco  vs.  ABSA Bank Limited

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -10-50510
JavaScript chart by amCharts 3.21.15BTI ABSP
       Timeline  
British American Tobacco 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, British Amer may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec60,00062,00064,00066,00068,000
ABSA Bank Limited 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ABSA Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec81,00082,00083,00084,00085,00086,00087,00088,00089,000

British Amer and ABSA Bank Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.68-2.76-1.83-0.910.00.911.842.773.7 0.10.20.30.4
JavaScript chart by amCharts 3.21.15BTI ABSP
       Returns  

Pair Trading with British Amer and ABSA Bank

The main advantage of trading using opposite British Amer and ABSA Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British Amer 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 British American Tobacco 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.

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