Correlation Between Investec Limited and Firstrand

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

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

Diversification Opportunities for Investec Limited and Firstrand

-0.68

Correlation Coefficient

Investec Limited  Firstrand

Excellent diversification

The 3 months correlation between Investec and Firstrand is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Investec Limited NON and Firstrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firstrand and Investec Limited 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 Investec Limited NON are associated (or correlated) with Firstrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firstrand has no effect on the direction of Investec Limited i.e., Investec Limited and Firstrand go up and down completely randomly.

Pair Corralation between Investec Limited and Firstrand

Assuming the 90 days trading horizon Investec Limited NON is expected to generate 1.04 times more return on investment than Firstrand. However, Investec Limited is 1.04 times more volatile than Firstrand. It trades about 0.05 of its potential returns per unit of risk. Firstrand is currently generating about -0.08 per unit of risk. If you would invest  889,900  in Investec Limited NON on September 3, 2024 and sell it today you would earn a total of  31,200  from holding Investec Limited NON or generate 3.51% return on investment over 90 days.

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

Investec Limited NON  vs.  Firstrand

Investec Limited NON

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Limited NON are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Investec Limited is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Firstrand

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Investec Limited and Firstrand

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

The idea behind Investec Limited NON and Firstrand 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .