Correlation Between Investec and Nedbank

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

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

Diversification Opportunities for Investec and Nedbank

0.24

Correlation Coefficient

Investec  Nedbank

Modest diversification

The 3 months correlation between Investec and Nedbank is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Investec and Nedbank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nedbank 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 Nedbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nedbank Group has no effect on the direction of Investec i.e., Investec and Nedbank go up and down completely randomly.

Pair Corralation between Investec and Nedbank

Assuming the 90 days trading horizon Investec is expected to generate 0.96 times more return on investment than Nedbank. However, Investec is 1.04 times less risky than Nedbank. It trades about -0.02 of its potential returns per unit of risk. Nedbank Group is currently generating about -0.1 per unit of risk. If you would invest  1,286,454  in Investec on September 26, 2024 and sell it today you would lose (31,454) from holding Investec or give up 2.45% of portfolio value over 90 days.

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

Investec  vs.  Nedbank 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.

Nedbank Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nedbank Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Investec and Nedbank

The main advantage of trading using opposite Investec and Nedbank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investec position performs unexpectedly, Nedbank 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 Nedbank will offset losses from the drop in Nedbank's long position.

The idea behind Investec and Nedbank 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.