Correlation Between ABSA Bank and Vodacom
Can any of the company-specific risk be diversified away by investing in both ABSA Bank and Vodacom 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 Vodacom 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 Vodacom Group, you can compare the effects of market volatilities on ABSA Bank and Vodacom 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 Vodacom. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and Vodacom.
Diversification Opportunities for ABSA Bank and Vodacom
Excellent diversification
The 3 months correlation between ABSA and Vodacom is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Vodacom Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodacom 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 Vodacom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodacom Group has no effect on the direction of ABSA Bank i.e., ABSA Bank and Vodacom go up and down completely randomly.
Pair Corralation between ABSA Bank and Vodacom
Assuming the 90 days trading horizon ABSA Bank Limited is expected to generate 0.4 times more return on investment than Vodacom. However, ABSA Bank Limited is 2.5 times less risky than Vodacom. It trades about 0.13 of its potential returns per unit of risk. Vodacom Group is currently generating about -0.06 per unit of risk. If you would invest 8,549,900 in ABSA Bank Limited on August 24, 2024 and sell it today you would earn a total of 170,000 from holding ABSA Bank Limited or generate 1.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABSA Bank Limited vs. Vodacom Group
Performance |
| Timeline |
| ABSA Bank Limited |
| Vodacom Group |
ABSA Bank and Vodacom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABSA Bank and Vodacom
The main advantage of trading using opposite ABSA Bank and Vodacom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABSA Bank position performs unexpectedly, Vodacom 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 Vodacom will offset losses from the drop in Vodacom's long position.| ABSA Bank vs. Allied Electronics | ABSA Bank vs. Astral Foods | ABSA Bank vs. Trematon Capital Investments | ABSA Bank vs. Astoria Investments |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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