Correlation Between EAST AFRICAN and ABSA BANK

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Can any of the company-specific risk be diversified away by investing in both EAST AFRICAN and ABSA 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 EAST AFRICAN and ABSA BANK into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EAST AFRICAN BREWERIES and ABSA BANK OF, you can compare the effects of market volatilities on EAST AFRICAN and ABSA 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 EAST AFRICAN with a short position of ABSA BANK. Check out your portfolio center. Please also check ongoing floating volatility patterns of EAST AFRICAN and ABSA BANK.

Diversification Opportunities for EAST AFRICAN and ABSA BANK

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between EAST and ABSA is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding EAST AFRICAN BREWERIES and ABSA BANK OF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABSA BANK and EAST AFRICAN 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 EAST AFRICAN BREWERIES are associated (or correlated) with ABSA BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABSA BANK has no effect on the direction of EAST AFRICAN i.e., EAST AFRICAN and ABSA BANK go up and down completely randomly.

Pair Corralation between EAST AFRICAN and ABSA BANK

Assuming the 90 days trading horizon EAST AFRICAN BREWERIES is expected to generate 1.58 times more return on investment than ABSA BANK. However, EAST AFRICAN is 1.58 times more volatile than ABSA BANK OF. It trades about 0.09 of its potential returns per unit of risk. ABSA BANK OF is currently generating about 0.03 per unit of risk. If you would invest  17,500  in EAST AFRICAN BREWERIES on August 28, 2024 and sell it today you would earn a total of  500.00  from holding EAST AFRICAN BREWERIES or generate 2.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

EAST AFRICAN BREWERIES  vs.  ABSA BANK OF

 Performance 
       Timeline  
EAST AFRICAN BREWERIES 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in EAST AFRICAN BREWERIES are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, EAST AFRICAN sustained solid returns over the last few months and may actually be approaching a breakup point.
ABSA BANK 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ABSA BANK OF are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, ABSA BANK is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

EAST AFRICAN and ABSA BANK Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with EAST AFRICAN and ABSA BANK

The main advantage of trading using opposite EAST AFRICAN and ABSA BANK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EAST AFRICAN position performs unexpectedly, ABSA 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 ABSA BANK will offset losses from the drop in ABSA BANK's long position.
EAST AFRICAN vs. CO OPERATIVE BANK OF
EAST AFRICAN vs. HOME AFRIKA LTD
The idea behind EAST AFRICAN BREWERIES and ABSA BANK OF pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
ABSA BANK vs. CO OPERATIVE BANK OF
ABSA BANK vs. HOME AFRIKA LTD
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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