Correlation Between ABSA Bank and Kumba Iron
Can any of the company-specific risk be diversified away by investing in both ABSA Bank and Kumba Iron 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 Kumba Iron 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 Kumba Iron Ore, you can compare the effects of market volatilities on ABSA Bank and Kumba Iron 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 Kumba Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and Kumba Iron.
Diversification Opportunities for ABSA Bank and Kumba Iron
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between ABSA and Kumba is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Kumba Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumba Iron Ore 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 Kumba Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumba Iron Ore has no effect on the direction of ABSA Bank i.e., ABSA Bank and Kumba Iron go up and down completely randomly.
Pair Corralation between ABSA Bank and Kumba Iron
Assuming the 90 days trading horizon ABSA Bank Limited is expected to under-perform the Kumba Iron. But the stock apears to be less risky and, when comparing its historical volatility, ABSA Bank Limited is 3.82 times less risky than Kumba Iron. The stock trades about -0.12 of its potential returns per unit of risk. The Kumba Iron Ore is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 3,320,600 in Kumba Iron Ore on November 3, 2024 and sell it today you would earn a total of 565,700 from holding Kumba Iron Ore or generate 17.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABSA Bank Limited vs. Kumba Iron Ore
Performance |
| Timeline |
| ABSA Bank Limited |
| Kumba Iron Ore |
ABSA Bank and Kumba Iron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABSA Bank and Kumba Iron
The main advantage of trading using opposite ABSA Bank and Kumba Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABSA Bank position performs unexpectedly, Kumba Iron 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 Kumba Iron will offset losses from the drop in Kumba Iron's long position.| ABSA Bank vs. Boxer Retail | ABSA Bank vs. Zeder Investments | ABSA Bank vs. Astral Foods | ABSA Bank vs. We Buy Cars |
| Kumba Iron vs. Reinet Investments SCA | Kumba Iron vs. Trematon Capital Investments | Kumba Iron vs. RCL Foods | Kumba Iron vs. Nedbank Group |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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