Correlation Between Standard Bank and Allan Gray

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

Diversification Opportunities for Standard Bank and Allan Gray

0.67

Correlation Coefficient

Standard Bank  Allan Gray

Poor diversification

The 3 months correlation between Standard and Allan is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Standard Bank Group and Allan Gray Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allan Gray Equity 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 Allan Gray. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allan Gray Equity has no effect on the direction of Standard Bank i.e., Standard Bank and Allan Gray go up and down completely randomly.

Pair Corralation between Standard Bank and Allan Gray

Assuming the 90 days trading horizon Standard Bank Group is expected to generate 2.44 times more return on investment than Allan Gray. However, Standard Bank is 2.44 times more volatile than Allan Gray Equity. It trades about 0.08 of its potential returns per unit of risk. Allan Gray Equity is currently generating about 0.15 per unit of risk. If you would invest  878,000  in Standard Bank Group on September 12, 2024 and sell it today you would earn a total of  52,000  from holding Standard Bank Group or generate 5.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Standard Bank Group  vs.  Allan Gray Equity

Standard Bank Group

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Bank Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Standard Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Allan Gray Equity

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allan Gray Equity are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. Despite fairly strong basic indicators, Allan Gray is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Standard Bank and Allan Gray

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

The idea behind Standard Bank Group and Allan Gray Equity 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.