Correlation Between Capitec Bank and Exxaro Resources

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

Diversification Opportunities for Capitec Bank and Exxaro Resources

0.54

Correlation Coefficient

Capitec Bank  Exxaro Resources

Very weak diversification

The 3 months correlation between Capitec and Exxaro is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Capitec Bank Holdings and Exxaro Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxaro Resources 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 Exxaro Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxaro Resources has no effect on the direction of Capitec Bank i.e., Capitec Bank and Exxaro Resources go up and down completely randomly.

Pair Corralation between Capitec Bank and Exxaro Resources

Assuming the 90 days trading horizon Capitec Bank Holdings is expected to generate 0.43 times more return on investment than Exxaro Resources. However, Capitec Bank Holdings is 2.33 times less risky than Exxaro Resources. It trades about -0.24 of its potential returns per unit of risk. Exxaro Resources is currently generating about -0.14 per unit of risk. If you would invest  33,272,200  in Capitec Bank Holdings on September 24, 2024 and sell it today you would lose (1,508,300) from holding Capitec Bank Holdings or give up 4.53% of portfolio value over 90 days.

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

Capitec Bank Holdings  vs.  Exxaro Resources

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.

Exxaro Resources

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Exxaro Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Exxaro Resources 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 Exxaro Resources

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

The idea behind Capitec Bank Holdings and Exxaro Resources 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.