Correlation Between Brait SE and Thungela Resources

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

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

Diversification Opportunities for Brait SE and Thungela Resources

0.71

Correlation Coefficient

Brait SE  Thungela Resources

Poor diversification

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

Pair Corralation between Brait SE and Thungela Resources

Assuming the 90 days trading horizon Brait SE is expected to generate 1.18 times more return on investment than Thungela Resources. However, Brait SE is 1.18 times more volatile than Thungela Resources Limited. It trades about 0.06 of its potential returns per unit of risk. Thungela Resources Limited is currently generating about -0.05 per unit of risk. If you would invest  19,600  in Brait SE on September 24, 2024 and sell it today you would earn a total of  400.00  from holding Brait SE or generate 2.04% return on investment over 90 days.

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

Brait SE  vs.  Thungela Resources Limited

Brait SE

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brait SE are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Brait SE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Thungela Resources

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Thungela Resources Limited are ranked lower than 14 (%) 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.

Pair Trading with Brait SE and Thungela Resources

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

The idea behind Brait SE and Thungela Resources Limited 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.