Correlation Between Investec and National Bank

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

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

Diversification Opportunities for Investec and National Bank

-0.08

Correlation Coefficient

Investec  National Bank

Good diversification

The 3 months correlation between Investec and National is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Investec Ltd ADR and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings 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 Ltd ADR are associated (or correlated) with National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of Investec i.e., Investec and National Bank go up and down completely randomly.

Pair Corralation between Investec and National Bank

Assuming the 90 days horizon Investec Ltd ADR is expected to generate 3.26 times more return on investment than National Bank. However, Investec is 3.26 times more volatile than National Bank Holdings. It trades about 0.05 of its potential returns per unit of risk. National Bank Holdings is currently generating about 0.01 per unit of risk. If you would invest  1,135  in Investec Ltd ADR on October 4, 2024 and sell it today you would earn a total of  535.00  from holding Investec Ltd ADR or generate 47.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	87.88%
Values	Daily Returns

Investec Ltd ADR  vs.  National Bank Holdings

Investec ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Ltd ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting technical and fundamental indicators, Investec showed solid returns over the last few months and may actually be approaching a breakup point.

National Bank Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, National Bank is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Investec and National Bank

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

The idea behind Investec Ltd ADR and National Bank Holdings 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..