Correlation Between Exxaro Resources and Kumba Iron

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

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

Diversification Opportunities for Exxaro Resources and Kumba Iron

0.09

Correlation Coefficient

Exxaro Resources  Kumba Iron

Significant diversification

The 3 months correlation between Exxaro and Kumba is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Exxaro Resources 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 Exxaro Resources 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 Exxaro Resources 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 Exxaro Resources i.e., Exxaro Resources and Kumba Iron go up and down completely randomly.

Pair Corralation between Exxaro Resources and Kumba Iron

Assuming the 90 days trading horizon Exxaro Resources is expected to under-perform the Kumba Iron. But the stock apears to be less risky and, when comparing its historical volatility, Exxaro Resources is 1.16 times less risky than Kumba Iron. The stock trades about -0.1 of its potential returns per unit of risk. The Kumba Iron Ore is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  3,523,800  in Kumba Iron Ore on September 27, 2024 and sell it today you would lose (225,100) from holding Kumba Iron Ore or give up 6.39% of portfolio value over 90 days.

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

Exxaro Resources  vs.  Kumba Iron Ore

Exxaro Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Exxaro Resources and Kumba Iron

The main advantage of trading using opposite Exxaro Resources and Kumba Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxaro Resources 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 Exxaro Resources 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.