Correlation Between Anglo American and Iluka Resources

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

By analyzing existing cross correlation between Anglo American plc and Iluka Resources Ltd, you can compare the effects of market volatilities on Anglo American and Iluka Resources 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 Anglo American with a short position of Iluka Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and Iluka Resources.

Diversification Opportunities for Anglo American and Iluka Resources

0.71

Correlation Coefficient

Anglo American  Iluka Resources

Poor diversification

The 3 months correlation between Anglo and Iluka is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American plc and Iluka Resources Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iluka Resources and Anglo American 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 Anglo American plc are associated (or correlated) with Iluka Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iluka Resources has no effect on the direction of Anglo American i.e., Anglo American and Iluka Resources go up and down completely randomly.

Pair Corralation between Anglo American and Iluka Resources

Assuming the 90 days horizon Anglo American plc is expected to generate 0.89 times more return on investment than Iluka Resources. However, Anglo American plc is 1.12 times less risky than Iluka Resources. It trades about 0.04 of its potential returns per unit of risk. Iluka Resources Ltd is currently generating about -0.04 per unit of risk. If you would invest  2,851  in Anglo American plc on September 1, 2024 and sell it today you would earn a total of  154.00  from holding Anglo American plc or generate 5.4% return on investment over 90 days.

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

Anglo American plc  vs.  Iluka Resources Ltd

Anglo American plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Anglo American may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Iluka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iluka Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Anglo American and Iluka Resources

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

The idea behind Anglo American plc and Iluka Resources Ltd 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 .