Correlation Between Allied Electronics and ABSA Bank

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

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

Diversification Opportunities for Allied Electronics and ABSA Bank

0.88

Correlation Coefficient

Allied Electronics  ABSA Bank

Very poor diversification

The 3 months correlation between Allied and ABSA is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Allied Electronics 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 Allied Electronics 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 Allied Electronics 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 Allied Electronics i.e., Allied Electronics and ABSA Bank go up and down completely randomly.

Pair Corralation between Allied Electronics and ABSA Bank

Assuming the 90 days trading horizon Allied Electronics is expected to generate 1.96 times more return on investment than ABSA Bank. However, Allied Electronics is 1.96 times more volatile than ABSA Bank Limited. It trades about 0.15 of its potential returns per unit of risk. ABSA Bank Limited is currently generating about 0.06 per unit of risk. If you would invest  166,000  in Allied Electronics on September 3, 2024 and sell it today you would earn a total of  36,000  from holding Allied Electronics or generate 21.69% return on investment over 90 days.

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

Allied Electronics  vs.  ABSA Bank Limited

Allied Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Electronics 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, Allied Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

ABSA Bank Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 4 (%) 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.

Pair Trading with Allied Electronics and ABSA Bank

The main advantage of trading using opposite Allied Electronics and ABSA Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Electronics 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.

The idea behind Allied Electronics and ABSA Bank Limited 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.