Correlation Between ABSA Bank and RMB Holdings
Can any of the company-specific risk be diversified away by investing in both ABSA Bank and RMB Holdings 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 RMB Holdings 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 RMB Holdings, you can compare the effects of market volatilities on ABSA Bank and RMB Holdings 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 RMB Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and RMB Holdings.
Diversification Opportunities for ABSA Bank and RMB Holdings
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ABSA and RMB is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and RMB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMB Holdings 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 RMB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMB Holdings has no effect on the direction of ABSA Bank i.e., ABSA Bank and RMB Holdings go up and down completely randomly.
Pair Corralation between ABSA Bank and RMB Holdings
Assuming the 90 days trading horizon ABSA Bank is expected to generate 1.3 times less return on investment than RMB Holdings. But when comparing it to its historical volatility, ABSA Bank Limited is 3.41 times less risky than RMB Holdings. It trades about 0.18 of its potential returns per unit of risk. RMB Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 4,100 in RMB Holdings on September 2, 2024 and sell it today you would earn a total of 100.00 from holding RMB Holdings or generate 2.44% 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. RMB Holdings
Performance |
| Timeline |
| ABSA Bank Limited |
| RMB Holdings |
ABSA Bank and RMB Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABSA Bank and RMB Holdings
The main advantage of trading using opposite ABSA Bank and RMB Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABSA Bank position performs unexpectedly, RMB Holdings 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 RMB Holdings will offset losses from the drop in RMB Holdings' long position.| ABSA Bank vs. Reinet Investments SCA | ABSA Bank vs. Safari Investments RSA | ABSA Bank vs. Harmony Gold Mining | ABSA Bank vs. Blue Label Telecoms |
| RMB Holdings vs. African Media Entertainment | RMB Holdings vs. ABSA Bank Limited | RMB Holdings vs. eMedia Holdings Limited | RMB Holdings vs. HomeChoice Investments |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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