Correlation Between Standard Bank and Pan African

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

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

Diversification Opportunities for Standard Bank and Pan African

0.41

Correlation Coefficient

Standard Bank  Pan African

Very weak diversification

The 3 months correlation between Standard and Pan is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Standard Bank Group and Pan African Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan African Resources and Standard 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 Standard Bank Group are associated (or correlated) with Pan African. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan African Resources has no effect on the direction of Standard Bank i.e., Standard Bank and Pan African go up and down completely randomly.

Pair Corralation between Standard Bank and Pan African

Assuming the 90 days trading horizon Standard Bank is expected to generate 2.72 times less return on investment than Pan African. But when comparing it to its historical volatility, Standard Bank Group is 2.09 times less risky than Pan African. It trades about 0.09 of its potential returns per unit of risk. Pan African Resources is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  74,000  in Pan African Resources on September 13, 2024 and sell it today you would earn a total of  12,200  from holding Pan African Resources or generate 16.49% return on investment over 90 days.

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

Standard Bank Group  vs.  Pan African Resources

Standard Bank Group

Risk-Adjusted Performance

6 of 100

Modest

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

Pan African Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pan African Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Pan African exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Standard Bank and Pan African

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

The idea behind Standard Bank Group and Pan African Resources 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.