Correlation Between Capitec Bank and Absa

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

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

Diversification Opportunities for Capitec Bank and Absa

0.27

Correlation Coefficient

Capitec Bank  Absa

Modest diversification

The 3 months correlation between Capitec and Absa is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Capitec Bank Holdings and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and Capitec 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 Capitec Bank Holdings are associated (or correlated) with Absa. 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 has no effect on the direction of Capitec Bank i.e., Capitec Bank and Absa go up and down completely randomly.

Pair Corralation between Capitec Bank and Absa

Assuming the 90 days trading horizon Capitec Bank Holdings is expected to under-perform the Absa. But the stock apears to be less risky and, when comparing its historical volatility, Capitec Bank Holdings is 1.71 times less risky than Absa. The stock trades about -0.13 of its potential returns per unit of risk. The Absa Group is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  1,670,100  in Absa Group on September 20, 2024 and sell it today you would earn a total of  279,900  from holding Absa Group or generate 16.76% return on investment over 90 days.

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

Capitec Bank Holdings  vs.  Absa Group

Capitec Bank Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capitec Bank Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Capitec Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Absa Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Absa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capitec Bank and Absa

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

The idea behind Capitec Bank Holdings and Absa Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.