Correlation Between Kap Industrial and Absa

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

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

Diversification Opportunities for Kap Industrial and Absa

-0.35

Correlation Coefficient

Kap Industrial  Absa

Very good diversification

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

Pair Corralation between Kap Industrial and Absa

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to under-perform the Absa. In addition to that, Kap Industrial is 2.05 times more volatile than Absa Group. It trades about -0.06 of its total potential returns per unit of risk. Absa Group is currently generating about 0.07 per unit of volatility. If you would invest  1,783,600  in Absa Group on December 4, 2024 and sell it today you would earn a total of  108,300  from holding Absa Group or generate 6.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Kap Industrial Holdings  vs.  Absa Group

Kap Industrial Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kap Industrial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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.

Absa Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Absa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Kap Industrial and Absa

The main advantage of trading using opposite Kap Industrial and Absa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kap Industrial 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 Kap Industrial Holdings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.