Correlation Between DRDGOLD and ABSA Bank

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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

0.23
  Correlation Coefficient

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 Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

DRDGOLD Limited  vs.  ABSA Bank Limited

 Performance 
       Timeline  
DRDGOLD Limited 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in DRDGOLD Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, DRDGOLD may actually be approaching a critical reversion point that can send shares even higher in January 2025.
ABSA Bank Limited 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, ABSA Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.
The idea behind DRDGOLD Limited and ABSA Bank 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.
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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