Correlation Between Remgro and Capitec Bank

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

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

Diversification Opportunities for Remgro and Capitec Bank

-0.16

Correlation Coefficient

Remgro  Capitec Bank

Good diversification

The 3 months correlation between Remgro and Capitec is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Remgro and Capitec Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitec Bank Holdings and Remgro 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 Remgro are associated (or correlated) with Capitec Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitec Bank Holdings has no effect on the direction of Remgro i.e., Remgro and Capitec Bank go up and down completely randomly.

Pair Corralation between Remgro and Capitec Bank

Assuming the 90 days trading horizon Remgro is expected to generate 1.39 times more return on investment than Capitec Bank. However, Remgro is 1.39 times more volatile than Capitec Bank Holdings. It trades about 0.07 of its potential returns per unit of risk. Capitec Bank Holdings is currently generating about -0.17 per unit of risk. If you would invest  1,528,800  in Remgro on October 4, 2024 and sell it today you would earn a total of  22,200  from holding Remgro or generate 1.45% return on investment over 90 days.

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

Remgro  vs.  Capitec Bank Holdings

Remgro

Risk-Adjusted Performance

0 of 100

Very Weak

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

Capitec Bank Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capitec Bank Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Capitec Bank is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Remgro and Capitec Bank

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

The idea behind Remgro and Capitec 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.