Correlation Between ABSA Bank and Lesaka Technologies

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

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

Diversification Opportunities for ABSA Bank and Lesaka Technologies

0.49

Correlation Coefficient

ABSA Bank  Lesaka Technologies

Very weak diversification

The 3 months correlation between ABSA and Lesaka is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Lesaka Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lesaka Technologies and ABSA Bank 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 Bank Limited are associated (or correlated) with Lesaka Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lesaka Technologies has no effect on the direction of ABSA Bank i.e., ABSA Bank and Lesaka Technologies go up and down completely randomly.

Pair Corralation between ABSA Bank and Lesaka Technologies

Assuming the 90 days trading horizon ABSA Bank is expected to generate 2.87 times less return on investment than Lesaka Technologies. But when comparing it to its historical volatility, ABSA Bank Limited is 5.5 times less risky than Lesaka Technologies. It trades about 0.18 of its potential returns per unit of risk. Lesaka Technologies is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  911,600  in Lesaka Technologies on September 2, 2024 and sell it today you would earn a total of  48,300  from holding Lesaka Technologies or generate 5.3% return on investment over 90 days.

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

ABSA Bank Limited  vs.  Lesaka Technologies

ABSA Bank Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ABSA Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Lesaka Technologies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lesaka Technologies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Lesaka Technologies is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ABSA Bank and Lesaka Technologies

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

The idea behind ABSA Bank Limited and Lesaka Technologies 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.