Correlation Between Exxaro Resources and Naspers

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

By analyzing existing cross correlation between Exxaro Resources and Naspers Limited, you can compare the effects of market volatilities on Exxaro Resources and Naspers 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 Naspers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxaro Resources and Naspers.

Diversification Opportunities for Exxaro Resources and Naspers

0.62

Correlation Coefficient

Exxaro Resources  Naspers

Poor diversification

The 3 months correlation between Exxaro and Naspers is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Exxaro Resources and Naspers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naspers Limited 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 Naspers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naspers Limited has no effect on the direction of Exxaro Resources i.e., Exxaro Resources and Naspers go up and down completely randomly.

Pair Corralation between Exxaro Resources and Naspers

Assuming the 90 days trading horizon Exxaro Resources is expected to generate 16.98 times less return on investment than Naspers. But when comparing it to its historical volatility, Exxaro Resources is 1.16 times less risky than Naspers. It trades about 0.0 of its potential returns per unit of risk. Naspers Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  29,739,900  in Naspers Limited on September 24, 2024 and sell it today you would earn a total of  12,460,100  from holding Naspers Limited or generate 41.9% return on investment over 90 days.

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

Exxaro Resources  vs.  Naspers Limited

Exxaro Resources

Risk-Adjusted Performance

0 of 100

Insignificant

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.

Naspers Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Naspers Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Naspers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Exxaro Resources and Naspers

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

The idea behind Exxaro Resources and Naspers 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.

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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.