This paper analyses returns and volatility on the Namibian and South African stock markets. We use daily closing indices of the Namibian Stock Exchange (NSX) and the Johannesburg Stock Exchange (JSE). The sample covers the period from January 4, 1999 to March 20, 2003. Our methodology has three main parts: (i) unit root tests, (ii) cointegration analysis and (iii) volatility modelling. The results show that both markets exhibit very low correlations, while there is no evidence of linear relationship between the markets. Furthermore, volatility analysis shows evidence of no spillover effects. Our results suggest that NSX is an attractive risk diversification tool for regional portfolio diversification in Southern Africa.