Correlation Between Capitec Bank and Sasol

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

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

Diversification Opportunities for Capitec Bank and Sasol

-0.86

Correlation Coefficient

Capitec Bank  Sasol

Pay attention - limited upside

The 3 months correlation between Capitec and Sasol is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Capitec Bank Holdings and Sasol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol and Capitec 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 Capitec Bank Holdings are associated (or correlated) with Sasol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sasol has no effect on the direction of Capitec Bank i.e., Capitec Bank and Sasol go up and down completely randomly.

Pair Corralation between Capitec Bank and Sasol

Assuming the 90 days trading horizon Capitec Bank Holdings is expected to generate 0.39 times more return on investment than Sasol. However, Capitec Bank Holdings is 2.57 times less risky than Sasol. It trades about 0.16 of its potential returns per unit of risk. Sasol is currently generating about -0.22 per unit of risk. If you would invest  29,241,000  in Capitec Bank Holdings on September 1, 2024 and sell it today you would earn a total of  3,370,800  from holding Capitec Bank Holdings or generate 11.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Capitec Bank Holdings  vs.  Sasol

Capitec Bank Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capitec Bank Holdings 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, Capitec Bank may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Sasol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sasol has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Capitec Bank and Sasol

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

The idea behind Capitec Bank Holdings and Sasol 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 Valuation module to check real value of public entities based on technical and fundamental data.