Correlation Between ABSA Bank and JSE
Can any of the company-specific risk be diversified away by investing in both ABSA Bank and JSE 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 JSE 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 JSE Limited, you can compare the effects of market volatilities on ABSA Bank and JSE 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 JSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and JSE.
Diversification Opportunities for ABSA Bank and JSE
Average diversification
The 3 months correlation between ABSA and JSE is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and JSE Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSE Limited 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 JSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSE Limited has no effect on the direction of ABSA Bank i.e., ABSA Bank and JSE go up and down completely randomly.
Pair Corralation between ABSA Bank and JSE
Assuming the 90 days trading horizon ABSA Bank is expected to generate 8.44 times less return on investment than JSE. But when comparing it to its historical volatility, ABSA Bank Limited is 1.18 times less risky than JSE. It trades about 0.01 of its potential returns per unit of risk. JSE Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 948,130 in JSE Limited on August 30, 2024 and sell it today you would earn a total of 240,770 from holding JSE Limited or generate 25.39% 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. JSE Limited
Performance |
| Timeline |
| ABSA Bank Limited |
| JSE Limited |
ABSA Bank and JSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABSA Bank and JSE
The main advantage of trading using opposite ABSA Bank and JSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABSA Bank position performs unexpectedly, JSE 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 JSE will offset losses from the drop in JSE's long position.| ABSA Bank vs. Kap Industrial Holdings | ABSA Bank vs. Bytes Technology | ABSA Bank vs. Frontier Transport Holdings | ABSA Bank vs. Lesaka Technologies |
| JSE vs. British American Tobacco | JSE vs. Anglo American PLC | JSE vs. Anglo American Platinum | JSE vs. ABSA Bank Limited |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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