Correlation Between Sanlam and Absa Group

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

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

Diversification Opportunities for Sanlam and Absa Group

0.45

Correlation Coefficient

Sanlam  Absa Group

Very weak diversification

The 3 months correlation between Sanlam and Absa is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sanlam Ltd PK and Absa Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and Sanlam 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 Sanlam Ltd PK are associated (or correlated) with Absa Group. 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 Sanlam i.e., Sanlam and Absa Group go up and down completely randomly.

Pair Corralation between Sanlam and Absa Group

Assuming the 90 days horizon Sanlam Ltd PK is expected to generate 0.85 times more return on investment than Absa Group. However, Sanlam Ltd PK is 1.18 times less risky than Absa Group. It trades about 0.01 of its potential returns per unit of risk. Absa Group Ltd is currently generating about -0.02 per unit of risk. If you would invest  926.00  in Sanlam Ltd PK on December 19, 2024 and sell it today you would earn a total of  2.00  from holding Sanlam Ltd PK or generate 0.22% return on investment over 90 days.

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

Sanlam Ltd PK  vs.  Absa Group Ltd

Sanlam Ltd PK

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sanlam Ltd PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Sanlam is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Absa Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Absa Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Absa Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sanlam and Absa Group

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

The idea behind Sanlam Ltd PK and Absa Group Ltd 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.