Correlation Between Capitec Bank and Pepkor Holdings

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

Diversification Opportunities for Capitec Bank and Pepkor Holdings

0.27

Correlation Coefficient

Capitec Bank  Pepkor Holdings

Modest diversification

The 3 months correlation between Capitec and Pepkor is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Capitec Bank Holdings and Pepkor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pepkor Holdings 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 Pepkor Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pepkor Holdings has no effect on the direction of Capitec Bank i.e., Capitec Bank and Pepkor Holdings go up and down completely randomly.

Pair Corralation between Capitec Bank and Pepkor Holdings

Assuming the 90 days trading horizon Capitec Bank is expected to generate 1.51 times less return on investment than Pepkor Holdings. But when comparing it to its historical volatility, Capitec Bank Holdings is 1.12 times less risky than Pepkor Holdings. It trades about 0.15 of its potential returns per unit of risk. Pepkor Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  176,500  in Pepkor Holdings on September 24, 2024 and sell it today you would earn a total of  121,300  from holding Pepkor Holdings or generate 68.73% 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.  Pepkor Holdings

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.

Pepkor Holdings

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pepkor Holdings are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Pepkor Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capitec Bank and Pepkor Holdings

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

The idea behind Capitec Bank Holdings and Pepkor Holdings 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.