Correlation Between Nedbank and Netcare

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

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

Diversification Opportunities for Nedbank and Netcare

0.1

Correlation Coefficient

Nedbank  Netcare

Average diversification

The 3 months correlation between Nedbank and Netcare is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Nedbank Group and Netcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netcare and Nedbank 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 Nedbank Group are associated (or correlated) with Netcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netcare has no effect on the direction of Nedbank i.e., Nedbank and Netcare go up and down completely randomly.

Pair Corralation between Nedbank and Netcare

Assuming the 90 days trading horizon Nedbank Group is expected to under-perform the Netcare. In addition to that, Nedbank is 1.43 times more volatile than Netcare. It trades about -0.01 of its total potential returns per unit of risk. Netcare is currently generating about -0.01 per unit of volatility. If you would invest  150,000  in Netcare on October 9, 2024 and sell it today you would lose (900.00) from holding Netcare or give up 0.6% of portfolio value over 90 days.

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

Nedbank Group  vs.  Netcare

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 rather sound technical and fundamental indicators, Nedbank is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Netcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Netcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Netcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Nedbank and Netcare

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

The idea behind Nedbank Group and Netcare 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.