Correlation Between Sasol and Capitec Bank

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

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

Diversification Opportunities for Sasol and Capitec Bank

-0.6

Correlation Coefficient

Sasol  Capitec Bank

Excellent diversification

The 3 months correlation between Sasol and Capitec is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sasol Ltd Bee 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 Sasol 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 Sasol Ltd Bee 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 Sasol i.e., Sasol and Capitec Bank go up and down completely randomly.

Pair Corralation between Sasol and Capitec Bank

Assuming the 90 days trading horizon Sasol Ltd Bee is expected to under-perform the Capitec Bank. In addition to that, Sasol is 3.21 times more volatile than Capitec Bank Holdings. It trades about -0.31 of its total potential returns per unit of risk. Capitec Bank Holdings is currently generating about -0.03 per unit of volatility. If you would invest  32,500,000  in Capitec Bank Holdings on September 5, 2024 and sell it today you would lose (232,300) from holding Capitec Bank Holdings or give up 0.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Sasol Ltd Bee  vs.  Capitec Bank Holdings

Sasol Ltd Bee

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sasol Ltd Bee has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Etf's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Capitec Bank Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capitec Bank Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain 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 Sasol and Capitec Bank

The main advantage of trading using opposite Sasol and Capitec Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sasol 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 Sasol Ltd Bee 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.