Correlation Between Standard Bank and Firstrand

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

Diversification Opportunities for Standard Bank and Firstrand

-0.29
  Correlation Coefficient

Very good diversification

The 3 months correlation between Standard and Firstrand is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Standard Bank Group and Firstrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firstrand 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 Firstrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firstrand has no effect on the direction of Standard Bank i.e., Standard Bank and Firstrand go up and down completely randomly.

Pair Corralation between Standard Bank and Firstrand

Assuming the 90 days trading horizon Standard Bank Group is expected to generate 1.12 times more return on investment than Firstrand. However, Standard Bank is 1.12 times more volatile than Firstrand. It trades about 0.06 of its potential returns per unit of risk. Firstrand is currently generating about -0.27 per unit of risk. If you would invest  930,000  in Standard Bank Group on October 11, 2024 and sell it today you would earn a total of  12,000  from holding Standard Bank Group or generate 1.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy94.74%
ValuesDaily Returns

Standard Bank Group  vs.  Firstrand

 Performance 
       Timeline  
Standard Bank Group 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Standard Bank Group are ranked lower than 3 (%) 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.
Firstrand 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Firstrand 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.

Standard Bank and Firstrand Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Standard Bank and Firstrand

The main advantage of trading using opposite Standard Bank and Firstrand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Bank position performs unexpectedly, Firstrand 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 Firstrand will offset losses from the drop in Firstrand's long position.
The idea behind Standard Bank Group and Firstrand 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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