Correlation Between Capitec Bank and Alexander Forbes

Can any of the company-specific risk be diversified away by investing in both Capitec Bank and Alexander Forbes 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 Alexander Forbes 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 Alexander Forbes Grp, you can compare the effects of market volatilities on Capitec Bank and Alexander Forbes 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 Alexander Forbes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capitec Bank and Alexander Forbes.

Diversification Opportunities for Capitec Bank and Alexander Forbes

0.49

Correlation Coefficient

Capitec Bank  Alexander Forbes

Very weak diversification

The 3 months correlation between Capitec and Alexander is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Capitec Bank Holdings and Alexander Forbes Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alexander Forbes Grp 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 Alexander Forbes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alexander Forbes Grp has no effect on the direction of Capitec Bank i.e., Capitec Bank and Alexander Forbes go up and down completely randomly.

Pair Corralation between Capitec Bank and Alexander Forbes

Assuming the 90 days trading horizon Capitec Bank is expected to generate 5.32 times less return on investment than Alexander Forbes. But when comparing it to its historical volatility, Capitec Bank Holdings is 2.53 times less risky than Alexander Forbes. It trades about 0.07 of its potential returns per unit of risk. Alexander Forbes Grp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  66,600  in Alexander Forbes Grp on September 24, 2024 and sell it today you would earn a total of  16,400  from holding Alexander Forbes Grp or generate 24.62% return on investment over 90 days.

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

Capitec Bank Holdings  vs.  Alexander Forbes Grp

Capitec Bank Holdings

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capitec Bank Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Capitec Bank is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Alexander Forbes Grp

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alexander Forbes Grp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Alexander Forbes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capitec Bank and Alexander Forbes

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

The idea behind Capitec Bank Holdings and Alexander Forbes Grp 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.