Correlation Between Standard Bank and Absa

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

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

Diversification Opportunities for Standard Bank and Absa

-0.56

Correlation Coefficient

Standard Bank  Absa

Excellent diversification

The 3 months correlation between Standard and Absa is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Standard Bank Group and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and Standard Bank 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 Standard Bank Group 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 Standard Bank i.e., Standard Bank and Absa go up and down completely randomly.

Pair Corralation between Standard Bank and Absa

Assuming the 90 days trading horizon Standard Bank Group is expected to generate 0.9 times more return on investment than Absa. However, Standard Bank Group is 1.11 times less risky than Absa. It trades about 0.07 of its potential returns per unit of risk. Absa Group is currently generating about 0.03 per unit of risk. If you would invest  1,445,116  in Standard Bank Group on September 20, 2024 and sell it today you would earn a total of  797,484  from holding Standard Bank Group or generate 55.18% return on investment over 90 days.

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

Standard Bank Group  vs.  Absa Group

Standard Bank Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Bank Group 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

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Absa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Standard Bank and Absa

The main advantage of trading using opposite Standard Bank and Absa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Bank 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 Standard Bank Group 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..