Correlation Between ABC BANKING and AFRICAN DOMESTIC
Can any of the company-specific risk be diversified away by investing in both ABC BANKING and AFRICAN DOMESTIC 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 ABC BANKING and AFRICAN DOMESTIC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABC BANKING PORATION and AFRICAN DOMESTIC BOND, you can compare the effects of market volatilities on ABC BANKING and AFRICAN DOMESTIC 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 ABC BANKING with a short position of AFRICAN DOMESTIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC BANKING and AFRICAN DOMESTIC.
Diversification Opportunities for ABC BANKING and AFRICAN DOMESTIC
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between ABC and AFRICAN is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding ABC BANKING PORATION and AFRICAN DOMESTIC BOND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFRICAN DOMESTIC BOND and ABC BANKING 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 ABC BANKING PORATION are associated (or correlated) with AFRICAN DOMESTIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFRICAN DOMESTIC BOND has no effect on the direction of ABC BANKING i.e., ABC BANKING and AFRICAN DOMESTIC go up and down completely randomly.
Pair Corralation between ABC BANKING and AFRICAN DOMESTIC
Assuming the 90 days trading horizon ABC BANKING PORATION is expected to under-perform the AFRICAN DOMESTIC. But the stock apears to be less risky and, when comparing its historical volatility, ABC BANKING PORATION is 5.83 times less risky than AFRICAN DOMESTIC. The stock trades about -0.2 of its potential returns per unit of risk. The AFRICAN DOMESTIC BOND is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 626.00 in AFRICAN DOMESTIC BOND on October 25, 2024 and sell it today you would earn a total of 8.00 from holding AFRICAN DOMESTIC BOND or generate 1.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABC BANKING PORATION vs. AFRICAN DOMESTIC BOND
Performance |
| Timeline |
| ABC BANKING PORATION |
| AFRICAN DOMESTIC BOND |
ABC BANKING and AFRICAN DOMESTIC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABC BANKING and AFRICAN DOMESTIC
The main advantage of trading using opposite ABC BANKING and AFRICAN DOMESTIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC BANKING position performs unexpectedly, AFRICAN DOMESTIC 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 AFRICAN DOMESTIC will offset losses from the drop in AFRICAN DOMESTIC's long position.| ABC BANKING vs. FINCORP INVESTMENT LTD | ABC BANKING vs. UNIVERSAL PARTNERS LTD | ABC BANKING vs. MCB GROUP LTD | ABC BANKING vs. MUA LTD |
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Check out your portfolio center.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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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