Correlation Between Absa and Investec
Can any of the company-specific risk be diversified away by investing in both Absa and Investec 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 Absa and Investec into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Absa Group and Investec, you can compare the effects of market volatilities on Absa and Investec 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 Absa with a short position of Investec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absa and Investec.
Diversification Opportunities for Absa and Investec
Good diversification
The 3 months correlation between Absa and Investec is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group and Investec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec and Absa 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 Absa Group are associated (or correlated) with Investec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec has no effect on the direction of Absa i.e., Absa and Investec go up and down completely randomly.
Pair Corralation between Absa and Investec
Assuming the 90 days trading horizon Absa is expected to generate 3.93 times less return on investment than Investec. In addition to that, Absa is 1.07 times more volatile than Investec. It trades about 0.01 of its total potential returns per unit of risk. Investec is currently generating about 0.06 per unit of volatility. If you would invest 894,028 in Investec on August 30, 2024 and sell it today you would earn a total of 404,272 from holding Investec or generate 45.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Absa Group vs. Investec
Performance |
| Timeline |
| Absa Group |
| Investec |
Absa and Investec Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Absa and Investec
The main advantage of trading using opposite Absa and Investec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absa position performs unexpectedly, Investec 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 Investec will offset losses from the drop in Investec's long position.| Absa vs. Capitec Bank Holdings | Absa vs. Standard Bank Group | Absa vs. Capitec Bank Holdings | Absa vs. Nedbank Group |
| Investec vs. CA Sales Holdings | Investec vs. RCL Foods | Investec vs. Datatec | Investec vs. Allied Electronics |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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