Correlation Between Exxaro Resources and RMB Holdings

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

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

Diversification Opportunities for Exxaro Resources and RMB Holdings

0.29

Correlation Coefficient

Exxaro Resources  RMB Holdings

Modest diversification

The 3 months correlation between Exxaro and RMB is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Exxaro Resources and RMB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMB Holdings 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 RMB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMB Holdings has no effect on the direction of Exxaro Resources i.e., Exxaro Resources and RMB Holdings go up and down completely randomly.

Pair Corralation between Exxaro Resources and RMB Holdings

Assuming the 90 days trading horizon Exxaro Resources is expected to under-perform the RMB Holdings. In addition to that, Exxaro Resources is 1.49 times more volatile than RMB Holdings. It trades about -0.14 of its total potential returns per unit of risk. RMB Holdings is currently generating about 0.16 per unit of volatility. If you would invest  4,200  in RMB Holdings on September 24, 2024 and sell it today you would earn a total of  200.00  from holding RMB Holdings or generate 4.76% return on investment over 90 days.

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

Exxaro Resources  vs.  RMB Holdings

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.

RMB Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RMB Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, RMB Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Exxaro Resources and RMB Holdings

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

The idea behind Exxaro Resources and RMB Holdings 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.