Correlation Between Investec and Absa

Can any of the company-specific risk be diversified away by investing in both Investec 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 Investec and Absa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Investec and Absa Group, you can compare the effects of market volatilities on Investec 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 Investec with a short position of Absa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investec and Absa.

Diversification Opportunities for Investec and Absa

-0.35

Correlation Coefficient

Investec  Absa

Very good diversification

The 3 months correlation between Investec and Absa is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Investec and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and Investec 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 Investec 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 Investec i.e., Investec and Absa go up and down completely randomly.

Pair Corralation between Investec and Absa

Assuming the 90 days trading horizon Investec is expected to generate 0.91 times more return on investment than Absa. However, Investec is 1.1 times less risky than Absa. It trades about 0.04 of its potential returns per unit of risk. Absa Group is currently generating about 0.03 per unit of risk. If you would invest  944,141  in Investec on September 20, 2024 and sell it today you would earn a total of  290,559  from holding Investec or generate 30.77% return on investment over 90 days.

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

Investec  vs.  Absa Group

Investec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investec has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Investec is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Absa Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Absa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Investec and Absa

The main advantage of trading using opposite Investec and Absa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investec 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 Investec 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.

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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.