Correlation Between Investec and ABSA Bank

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

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

Diversification Opportunities for Investec and ABSA Bank

0.06

Correlation Coefficient

Investec  ABSA Bank

Significant diversification

The 3 months correlation between Investec and ABSA is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Investec 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 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 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 Investec i.e., Investec and ABSA Bank go up and down completely randomly.

Pair Corralation between Investec and ABSA Bank

Assuming the 90 days trading horizon Investec is expected to under-perform the ABSA Bank. In addition to that, Investec is 1.31 times more volatile than ABSA Bank Limited. It trades about -0.02 of its total potential returns per unit of risk. ABSA Bank Limited is currently generating about 0.09 per unit of volatility. If you would invest  8,190,000  in ABSA Bank Limited on September 21, 2024 and sell it today you would earn a total of  430,000  from holding ABSA Bank Limited or generate 5.25% return on investment over 90 days.

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

Investec  vs.  ABSA Bank Limited

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

ABSA Bank Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ABSA Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Investec and ABSA Bank

The main advantage of trading using opposite Investec and ABSA Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investec 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 Investec 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.