Correlation Between Absa and Nedbank
Can any of the company-specific risk be diversified away by investing in both Absa and Nedbank 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 Nedbank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Absa Group and Nedbank Group, you can compare the effects of market volatilities on Absa and Nedbank 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 Nedbank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absa and Nedbank.
Diversification Opportunities for Absa and Nedbank
Very good diversification
The 3 months correlation between Absa and Nedbank is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group and Nedbank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nedbank Group 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 Nedbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nedbank Group has no effect on the direction of Absa i.e., Absa and Nedbank go up and down completely randomly.
Pair Corralation between Absa and Nedbank
Assuming the 90 days trading horizon Absa Group is expected to under-perform the Nedbank. But the stock apears to be less risky and, when comparing its historical volatility, Absa Group is 1.21 times less risky than Nedbank. The stock trades about -0.04 of its potential returns per unit of risk. The Nedbank Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2,846,300 in Nedbank Group on October 21, 2024 and sell it today you would earn a total of 3,700 from holding Nedbank Group or generate 0.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Absa Group vs. Nedbank Group
Performance |
| Timeline |
| Absa Group |
| Nedbank Group |
Absa and Nedbank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Absa and Nedbank
The main advantage of trading using opposite Absa and Nedbank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absa position performs unexpectedly, Nedbank 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 Nedbank will offset losses from the drop in Nedbank's long position.| Absa vs. ABSA Bank Limited | Absa vs. Capitec Bank Holdings | Absa vs. Standard Bank Group | Absa vs. Capitec Bank Holdings |
| Nedbank vs. Harmony Gold Mining | Nedbank vs. Brimstone Investment | Nedbank vs. Ascendis Health | Nedbank vs. MC Mining |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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