Correlation Between Thungela Resources and Capitec Bank

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

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

Diversification Opportunities for Thungela Resources and Capitec Bank

0.86

Correlation Coefficient

Thungela Resources  Capitec Bank

Very poor diversification

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

Pair Corralation between Thungela Resources and Capitec Bank

Assuming the 90 days trading horizon Thungela Resources Limited is expected to generate 1.92 times more return on investment than Capitec Bank. However, Thungela Resources is 1.92 times more volatile than Capitec Bank Holdings. It trades about 0.11 of its potential returns per unit of risk. Capitec Bank Holdings is currently generating about 0.16 per unit of risk. If you would invest  1,119,025  in Thungela Resources Limited on September 2, 2024 and sell it today you would earn a total of  159,275  from holding Thungela Resources Limited or generate 14.23% return on investment over 90 days.

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

Thungela Resources Limited  vs.  Capitec Bank Holdings

Thungela Resources

Risk-Adjusted Performance

8 of 100

OK

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

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 January 2025.

Pair Trading with Thungela Resources and Capitec Bank

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

The idea behind Thungela Resources Limited and Capitec Bank Holdings 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.