Correlation Between Mr Price and ABSA Bank

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

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

Diversification Opportunities for Mr Price and ABSA Bank

0.71

Correlation Coefficient

Mr Price  ABSA Bank

Poor diversification

The 3 months correlation between MRP and ABSA is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Mr Price Group 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 Mr Price 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 Mr Price Group 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 Mr Price i.e., Mr Price and ABSA Bank go up and down completely randomly.

Pair Corralation between Mr Price and ABSA Bank

Assuming the 90 days trading horizon Mr Price Group is expected to generate 1.55 times more return on investment than ABSA Bank. However, Mr Price is 1.55 times more volatile than ABSA Bank Limited. It trades about 0.08 of its potential returns per unit of risk. ABSA Bank Limited is currently generating about 0.01 per unit of risk. If you would invest  1,513,182  in Mr Price Group on October 12, 2024 and sell it today you would earn a total of  1,254,718  from holding Mr Price Group or generate 82.92% return on investment over 90 days.

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

Mr Price Group  vs.  ABSA Bank Limited

Mr Price Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mr Price Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Mr Price may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Mr Price and ABSA Bank

The main advantage of trading using opposite Mr Price and ABSA Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mr Price 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 Mr Price Group 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.