Correlation Between First Merchants and Absa Group
Can any of the company-specific risk be diversified away by investing in both First Merchants and Absa Group 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 First Merchants and Absa Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Merchants and Absa Group Limited, you can compare the effects of market volatilities on First Merchants and Absa Group 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 First Merchants with a short position of Absa Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Merchants and Absa Group.
Diversification Opportunities for First Merchants and Absa Group
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Absa is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and Absa Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group Limited and First Merchants 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 First Merchants are associated (or correlated) with Absa Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absa Group Limited has no effect on the direction of First Merchants i.e., First Merchants and Absa Group go up and down completely randomly.
Pair Corralation between First Merchants and Absa Group
Assuming the 90 days horizon First Merchants is expected to generate 7.63 times less return on investment than Absa Group. But when comparing it to its historical volatility, First Merchants is 5.78 times less risky than Absa Group. It trades about 0.03 of its potential returns per unit of risk. Absa Group Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 383.00 in Absa Group Limited on August 23, 2024 and sell it today you would earn a total of 428.00 from holding Absa Group Limited or generate 111.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Merchants vs. Absa Group Limited
Performance |
| Timeline |
| First Merchants |
| Absa Group Limited |
First Merchants and Absa Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Merchants and Absa Group
The main advantage of trading using opposite First Merchants and Absa Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Merchants position performs unexpectedly, Absa Group 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 Group will offset losses from the drop in Absa Group's long position.| First Merchants vs. Heartland Financial USA | First Merchants vs. OceanFirst Financial Corp | First Merchants vs. Old National Bancorp | First Merchants vs. Old National Bancorp |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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