Correlation Between Capitec Bank and Kumba Iron

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

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

Diversification Opportunities for Capitec Bank and Kumba Iron

-0.37

Correlation Coefficient

Capitec Bank  Kumba Iron

Very good diversification

The 3 months correlation between Capitec and Kumba is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Capitec Bank Holdings and Kumba Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumba Iron Ore and Capitec Bank 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 Capitec Bank Holdings are associated (or correlated) with Kumba Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumba Iron Ore has no effect on the direction of Capitec Bank i.e., Capitec Bank and Kumba Iron go up and down completely randomly.

Pair Corralation between Capitec Bank and Kumba Iron

Assuming the 90 days trading horizon Capitec Bank Holdings is expected to generate 0.38 times more return on investment than Kumba Iron. However, Capitec Bank Holdings is 2.6 times less risky than Kumba Iron. It trades about 0.18 of its potential returns per unit of risk. Kumba Iron Ore is currently generating about 0.0 per unit of risk. If you would invest  29,735,900  in Capitec Bank Holdings on September 13, 2024 and sell it today you would earn a total of  3,331,900  from holding Capitec Bank Holdings or generate 11.2% return on investment over 90 days.

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

Capitec Bank Holdings  vs.  Kumba Iron Ore

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 unsteady technical and fundamental indicators, Capitec Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Kumba Iron Ore

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Capitec Bank and Kumba Iron

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

The idea behind Capitec Bank Holdings and Kumba Iron Ore 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.