Correlation Between Standard Bank and Lewis Group

Can any of the company-specific risk be diversified away by investing in both Standard Bank and Lewis Group 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 Lewis Group 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 Lewis Group Limited, you can compare the effects of market volatilities on Standard Bank and Lewis Group 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 Lewis Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard Bank and Lewis Group.

Diversification Opportunities for Standard Bank and Lewis Group

-0.41

Correlation Coefficient

Standard Bank  Lewis Group

Very good diversification

The 3 months correlation between Standard and Lewis is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Standard Bank Group and Lewis Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lewis Group Limited 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 Lewis Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lewis Group Limited has no effect on the direction of Standard Bank i.e., Standard Bank and Lewis Group go up and down completely randomly.

Pair Corralation between Standard Bank and Lewis Group

Assuming the 90 days trading horizon Standard Bank Group is expected to under-perform the Lewis Group. But the stock apears to be less risky and, when comparing its historical volatility, Standard Bank Group is 2.12 times less risky than Lewis Group. The stock trades about -0.11 of its potential returns per unit of risk. The Lewis Group Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  699,700  in Lewis Group Limited on October 5, 2024 and sell it today you would earn a total of  90,300  from holding Lewis Group Limited or generate 12.91% 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.  Lewis Group Limited

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.

Lewis Group Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lewis Group Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Lewis Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Standard Bank and Lewis Group

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

The idea behind Standard Bank Group and Lewis Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.