Correlation Between S A P and ABSA Bank
Can any of the company-specific risk be diversified away by investing in both S A P 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 S A P and ABSA Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sappi and ABSA Bank Limited, you can compare the effects of market volatilities on S A P 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 S A P with a short position of ABSA Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and ABSA Bank.
Diversification Opportunities for S A P and ABSA Bank
Poor diversification
The 3 months correlation between SAP and ABSA is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sappi and ABSA Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABSA Bank Limited and S A P 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 Sappi 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 Limited has no effect on the direction of S A P i.e., S A P and ABSA Bank go up and down completely randomly.
Pair Corralation between S A P and ABSA Bank
Assuming the 90 days trading horizon S A P is expected to generate 1.52 times less return on investment than ABSA Bank. In addition to that, S A P is 4.23 times more volatile than ABSA Bank Limited. It trades about 0.03 of its total potential returns per unit of risk. ABSA Bank Limited is currently generating about 0.18 per unit of volatility. If you would invest 8,500,000 in ABSA Bank Limited on September 2, 2024 and sell it today you would earn a total of 180,000 from holding ABSA Bank Limited or generate 2.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sappi vs. ABSA Bank Limited
Performance |
| Timeline |
| Sappi |
| ABSA Bank Limited |
S A P and ABSA Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S A P and ABSA Bank
The main advantage of trading using opposite S A P and ABSA Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P 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.| S A P vs. ABSA Bank Limited | S A P vs. RCL Foods | S A P vs. CA Sales Holdings | S A P vs. Deneb 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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