Correlation Between ABSA Bank and Absa
Can any of the company-specific risk be diversified away by investing in both ABSA Bank and Absa 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 Bank and Absa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABSA Bank Limited and Absa Group, you can compare the effects of market volatilities on ABSA Bank and Absa 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 Bank with a short position of Absa. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and Absa.
Diversification Opportunities for ABSA Bank and Absa
Average diversification
The 3 months correlation between ABSA and Absa is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and ABSA 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 ABSA Bank Limited are associated (or correlated) with Absa. 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 ABSA Bank i.e., ABSA Bank and Absa go up and down completely randomly.
Pair Corralation between ABSA Bank and Absa
Assuming the 90 days trading horizon ABSA Bank is expected to generate 3.0 times less return on investment than Absa. But when comparing it to its historical volatility, ABSA Bank Limited is 1.29 times less risky than Absa. It trades about 0.01 of its potential returns per unit of risk. Absa Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1,650,824 in Absa Group on September 3, 2024 and sell it today you would earn a total of 74,176 from holding Absa Group or generate 4.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABSA Bank Limited vs. Absa Group
Performance |
| Timeline |
| ABSA Bank Limited |
| Absa Group |
ABSA Bank and Absa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABSA Bank and Absa
The main advantage of trading using opposite ABSA Bank and Absa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABSA Bank position performs unexpectedly, Absa 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 will offset losses from the drop in Absa's long position.| ABSA Bank vs. HomeChoice Investments | ABSA Bank vs. Brimstone Investment | ABSA Bank vs. Frontier Transport Holdings | ABSA Bank vs. Reinet Investments SCA |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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