Correlation Between Standard Bank and Bank Central

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

Diversification Opportunities for Standard Bank and Bank Central

-0.72

Correlation Coefficient

Standard Bank  Bank Central

Pay attention - limited upside

The 3 months correlation between Standard and Bank is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Standard Bank Group and Bank Central Asia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Central Asia 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 Bank Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Central Asia has no effect on the direction of Standard Bank i.e., Standard Bank and Bank Central go up and down completely randomly.

Pair Corralation between Standard Bank and Bank Central

Assuming the 90 days horizon Standard Bank Group is expected to generate 0.86 times more return on investment than Bank Central. However, Standard Bank Group is 1.16 times less risky than Bank Central. It trades about 0.11 of its potential returns per unit of risk. Bank Central Asia is currently generating about -0.09 per unit of risk. If you would invest  1,178  in Standard Bank Group on December 29, 2024 and sell it today you would earn a total of  140.00  from holding Standard Bank Group or generate 11.88% return on investment over 90 days.

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

Standard Bank Group  vs.  Bank Central Asia

Standard Bank Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Bank Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Standard Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Bank Central Asia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Standard Bank and Bank Central

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

The idea behind Standard Bank Group and Bank Central Asia 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.