Correlation Between ABSA Bank and Deneb Investments
Can any of the company-specific risk be diversified away by investing in both ABSA Bank and Deneb Investments 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 Deneb Investments 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 Deneb Investments, you can compare the effects of market volatilities on ABSA Bank and Deneb Investments 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 Deneb Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and Deneb Investments.
Diversification Opportunities for ABSA Bank and Deneb Investments
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ABSA and Deneb is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Deneb Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deneb Investments 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 Deneb Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deneb Investments has no effect on the direction of ABSA Bank i.e., ABSA Bank and Deneb Investments go up and down completely randomly.
Pair Corralation between ABSA Bank and Deneb Investments
Assuming the 90 days trading horizon ABSA Bank is expected to generate 2.34 times less return on investment than Deneb Investments. But when comparing it to its historical volatility, ABSA Bank Limited is 1.26 times less risky than Deneb Investments. It trades about 0.22 of its potential returns per unit of risk. Deneb Investments is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest 24,600 in Deneb Investments on August 28, 2024 and sell it today you would earn a total of 1,300 from holding Deneb Investments or generate 5.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABSA Bank Limited vs. Deneb Investments
Performance |
| Timeline |
| ABSA Bank Limited |
| Deneb Investments |
ABSA Bank and Deneb Investments Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABSA Bank and Deneb Investments
The main advantage of trading using opposite ABSA Bank and Deneb Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABSA Bank position performs unexpectedly, Deneb Investments 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 Deneb Investments will offset losses from the drop in Deneb Investments' long position.The idea behind ABSA Bank Limited and Deneb Investments 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.| Deneb Investments vs. Blue Label Telecoms | Deneb Investments vs. CA Sales Holdings | Deneb Investments vs. Allied Electronics | Deneb Investments vs. RCL Foods |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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