Correlation Between Absa Multi and Custodian BCI

Can any of the company-specific risk be diversified away by investing in both Absa Multi and Custodian BCI 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 Multi and Custodian BCI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Absa Multi managed Absolute and Custodian BCI Balanced, you can compare the effects of market volatilities on Absa Multi and Custodian BCI 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 Multi with a short position of Custodian BCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absa Multi and Custodian BCI.

Diversification Opportunities for Absa Multi and Custodian BCI

0.82

Correlation Coefficient

Absa Multi  Custodian BCI

Very poor diversification

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

Pair Corralation between Absa Multi and Custodian BCI

Assuming the 90 days trading horizon Absa Multi is expected to generate 1.84 times less return on investment than Custodian BCI. But when comparing it to its historical volatility, Absa Multi managed Absolute is 1.29 times less risky than Custodian BCI. It trades about 0.14 of its potential returns per unit of risk. Custodian BCI Balanced is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  260.00  in Custodian BCI Balanced on September 12, 2024 and sell it today you would earn a total of  13.00  from holding Custodian BCI Balanced or generate 5.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.83%
Values	Daily Returns

Absa Multi managed Absolute  vs.  Custodian BCI Balanced

Absa Multi managed

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Multi managed Absolute are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Absa Multi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Custodian BCI Balanced

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Custodian BCI Balanced are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. Despite fairly strong basic indicators, Custodian BCI is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Absa Multi and Custodian BCI

The main advantage of trading using opposite Absa Multi and Custodian BCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absa Multi position performs unexpectedly, Custodian BCI 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 Custodian BCI will offset losses from the drop in Custodian BCI's long position.

The idea behind Absa Multi managed Absolute and Custodian BCI Balanced 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.