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

-0.44

Correlation Coefficient

Capitec Bank  Absa

Very good diversification

The 3 months correlation between Capitec and Absa is -0.44. 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 generate 0.35 times more return on investment than Absa. However, Capitec Bank Holdings is 2.87 times less risky than Absa. It trades about -0.01 of its potential returns per unit of risk. Absa Group is currently generating about -0.03 per unit of risk. If you would invest  1,023,000  in Capitec Bank Holdings on December 27, 2024 and sell it today you would lose (2,400) from holding Capitec Bank Holdings or give up 0.23% of portfolio value over 90 days.

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

Capitec Bank Holdings  vs.  Absa Group

Capitec Bank Holdings

Risk-Adjusted Performance

OK

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 comparatively stable basic indicators, Capitec Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Absa Group

Risk-Adjusted Performance

Very Weak

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

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.