Correlation Between Absa and Standard Bank

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

By analyzing existing cross correlation between Absa Group and Standard Bank Group, you can compare the effects of market volatilities on Absa and Standard 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 with a short position of Standard Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absa and Standard Bank.

Diversification Opportunities for Absa and Standard Bank

-0.4

Correlation Coefficient

Absa  Standard Bank

Very good diversification

The 3 months correlation between Absa and Standard is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group and Standard Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Bank Group and Absa 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 are associated (or correlated) with Standard Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Bank Group has no effect on the direction of Absa i.e., Absa and Standard Bank go up and down completely randomly.

Pair Corralation between Absa and Standard Bank

Assuming the 90 days trading horizon Absa Group is expected to generate 1.31 times more return on investment than Standard Bank. However, Absa is 1.31 times more volatile than Standard Bank Group. It trades about 0.16 of its potential returns per unit of risk. Standard Bank Group is currently generating about -0.05 per unit of risk. If you would invest  1,714,000  in Absa Group on September 17, 2024 and sell it today you would earn a total of  253,800  from holding Absa Group or generate 14.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Absa Group  vs.  Standard Bank Group

Absa Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Absa exhibited solid returns over the last few months and may actually be approaching a breakup point.

Standard Bank Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Bank Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Standard Bank is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Absa and Standard Bank

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

The idea behind Absa Group and Standard Bank Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.