Correlation Between Absa Group and Freedom Bank
Can any of the company-specific risk be diversified away by investing in both Absa Group and Freedom Bank 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 Group and Freedom Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Absa Group Ltd and Freedom Bank of, you can compare the effects of market volatilities on Absa Group and Freedom Bank 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 Group with a short position of Freedom Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absa Group and Freedom Bank.
Diversification Opportunities for Absa Group and Freedom Bank
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Absa and Freedom is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group Ltd and Freedom Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Bank and Absa Group 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 Group Ltd are associated (or correlated) with Freedom Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Bank has no effect on the direction of Absa Group i.e., Absa Group and Freedom Bank go up and down completely randomly.
Pair Corralation between Absa Group and Freedom Bank
Assuming the 90 days horizon Absa Group Ltd is expected to generate 4.16 times more return on investment than Freedom Bank. However, Absa Group is 4.16 times more volatile than Freedom Bank of. It trades about 0.21 of its potential returns per unit of risk. Freedom Bank of is currently generating about 0.15 per unit of risk. If you would invest 1,930 in Absa Group Ltd on September 12, 2024 and sell it today you would earn a total of 295.00 from holding Absa Group Ltd or generate 15.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Absa Group Ltd vs. Freedom Bank of
Performance |
| Timeline |
| Absa Group |
| Freedom Bank |
Absa Group and Freedom Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Absa Group and Freedom Bank
The main advantage of trading using opposite Absa Group and Freedom Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absa Group position performs unexpectedly, Freedom Bank 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 Freedom Bank will offset losses from the drop in Freedom Bank's long position.| Absa Group vs. Freedom Bank of | Absa Group vs. HUMANA INC | Absa Group vs. Barloworld Ltd ADR | Absa Group vs. Morningstar Unconstrained Allocation |
| Freedom Bank vs. HUMANA INC | Freedom Bank vs. Barloworld Ltd ADR | Freedom Bank vs. Morningstar Unconstrained Allocation | Freedom Bank vs. Thrivent High Yield |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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