Correlation Between DRDGOLD and ABSA Bank
Can any of the company-specific risk be diversified away by investing in both DRDGOLD and ABSA Bank 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 DRDGOLD and ABSA Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DRDGOLD Limited and ABSA Bank Limited, you can compare the effects of market volatilities on DRDGOLD and ABSA Bank 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 DRDGOLD with a short position of ABSA Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of DRDGOLD and ABSA Bank.
Diversification Opportunities for DRDGOLD and ABSA Bank
Modest diversification
The 3 months correlation between DRDGOLD and ABSA is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding DRDGOLD Limited and ABSA Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABSA Bank Limited and DRDGOLD 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 DRDGOLD Limited are associated (or correlated) with ABSA Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABSA Bank Limited has no effect on the direction of DRDGOLD i.e., DRDGOLD and ABSA Bank go up and down completely randomly.
Pair Corralation between DRDGOLD and ABSA Bank
Assuming the 90 days trading horizon DRDGOLD Limited is expected to generate 2.64 times more return on investment than ABSA Bank. However, DRDGOLD is 2.64 times more volatile than ABSA Bank Limited. It trades about 0.06 of its potential returns per unit of risk. ABSA Bank Limited is currently generating about 0.13 per unit of risk. If you would invest 155,800 in DRDGOLD Limited on September 15, 2024 and sell it today you would earn a total of 12,800 from holding DRDGOLD Limited or generate 8.22% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
DRDGOLD Limited vs. ABSA Bank Limited
Performance |
Timeline |
DRDGOLD Limited |
ABSA Bank Limited |
DRDGOLD and ABSA Bank Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with DRDGOLD and ABSA Bank
The main advantage of trading using opposite DRDGOLD and ABSA Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DRDGOLD position performs unexpectedly, ABSA Bank 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 Bank will offset losses from the drop in ABSA Bank's long position.DRDGOLD vs. ABSA Bank Limited | DRDGOLD vs. Harmony Gold Mining | DRDGOLD vs. Kap Industrial Holdings | DRDGOLD vs. MC Mining |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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