Correlation Between Freeport McMoran and Lundin Mining

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

By analyzing existing cross correlation between Freeport McMoran Copper Gold and Lundin Mining, you can compare the effects of market volatilities on Freeport McMoran and Lundin Mining 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 Freeport McMoran with a short position of Lundin Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport McMoran and Lundin Mining.

Diversification Opportunities for Freeport McMoran and Lundin Mining

-0.4

Correlation Coefficient

Freeport McMoran  Lundin Mining

Very good diversification

The 3 months correlation between Freeport and Lundin is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoran Copper Gold and Lundin Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lundin Mining and Freeport McMoran 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 Freeport McMoran Copper Gold are associated (or correlated) with Lundin Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lundin Mining has no effect on the direction of Freeport McMoran i.e., Freeport McMoran and Lundin Mining go up and down completely randomly.

Pair Corralation between Freeport McMoran and Lundin Mining

Considering the 90-day investment horizon Freeport McMoran is expected to generate 12.98 times less return on investment than Lundin Mining. But when comparing it to its historical volatility, Freeport McMoran Copper Gold is 1.16 times less risky than Lundin Mining. It trades about 0.02 of its potential returns per unit of risk. Lundin Mining is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  614.00  in Lundin Mining on September 20, 2024 and sell it today you would earn a total of  98.00  from holding Lundin Mining or generate 15.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	5.66%
Values	Daily Returns

Freeport McMoran Copper Gold  vs.  Lundin Mining

Freeport McMoran Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoran Copper Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Lundin Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lundin Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Lundin Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Freeport McMoran and Lundin Mining

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

The idea behind Freeport McMoran Copper Gold and Lundin Mining 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.