Correlation Between Capitec Bank and DRDGOLD

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

Diversification Opportunities for Capitec Bank and DRDGOLD

0.07

Correlation Coefficient

Capitec Bank  DRDGOLD

Significant diversification

The 3 months correlation between Capitec and DRDGOLD is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Capitec Bank Holdings and DRDGOLD Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRDGOLD Limited 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 DRDGOLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRDGOLD Limited has no effect on the direction of Capitec Bank i.e., Capitec Bank and DRDGOLD go up and down completely randomly.

Pair Corralation between Capitec Bank and DRDGOLD

Assuming the 90 days trading horizon Capitec Bank Holdings is expected to under-perform the DRDGOLD. But the stock apears to be less risky and, when comparing its historical volatility, Capitec Bank Holdings is 2.16 times less risky than DRDGOLD. The stock trades about -0.35 of its potential returns per unit of risk. The DRDGOLD Limited is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  178,600  in DRDGOLD Limited on October 10, 2024 and sell it today you would lose (8,100) from holding DRDGOLD Limited or give up 4.54% of portfolio value over 90 days.

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

Capitec Bank Holdings  vs.  DRDGOLD Limited

Capitec Bank Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capitec Bank Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

DRDGOLD Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DRDGOLD Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, DRDGOLD is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Capitec Bank and DRDGOLD

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

The idea behind Capitec Bank Holdings and DRDGOLD 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.