Correlation Between Anglo American and Octodec

Can any of the company-specific risk be diversified away by investing in both Anglo American and Octodec 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 Octodec 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 Octodec, you can compare the effects of market volatilities on Anglo American and Octodec 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 Octodec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and Octodec.

Diversification Opportunities for Anglo American and Octodec

-0.3

Correlation Coefficient

Anglo American  Octodec

Very good diversification

The 3 months correlation between Anglo and Octodec is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American PLC and Octodec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Octodec 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 Octodec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Octodec has no effect on the direction of Anglo American i.e., Anglo American and Octodec go up and down completely randomly.

Pair Corralation between Anglo American and Octodec

Assuming the 90 days trading horizon Anglo American PLC is expected to generate 1.33 times more return on investment than Octodec. However, Anglo American is 1.33 times more volatile than Octodec. It trades about 0.07 of its potential returns per unit of risk. Octodec is currently generating about 0.06 per unit of risk. If you would invest  4,969,600  in Anglo American PLC on October 3, 2024 and sell it today you would earn a total of  548,900  from holding Anglo American PLC or generate 11.05% return on investment over 90 days.

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

Anglo American PLC  vs.  Octodec

Anglo American PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anglo American PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Anglo American is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Octodec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Octodec has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Octodec is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Anglo American and Octodec

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

The idea behind Anglo American PLC and Octodec 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.