Correlation Between First Quantum and Southern Copper

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

By analyzing existing cross correlation between First Quantum Minerals and Southern Copper, you can compare the effects of market volatilities on First Quantum and Southern Copper 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 First Quantum with a short position of Southern Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Quantum and Southern Copper.

Diversification Opportunities for First Quantum and Southern Copper

0.71

Correlation Coefficient

First Quantum  Southern Copper

Poor diversification

The 3 months correlation between First and Southern is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Quantum Minerals and Southern Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Copper and First Quantum 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 First Quantum Minerals are associated (or correlated) with Southern Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Copper has no effect on the direction of First Quantum i.e., First Quantum and Southern Copper go up and down completely randomly.

Pair Corralation between First Quantum and Southern Copper

Assuming the 90 days horizon First Quantum Minerals is expected to generate 1.26 times more return on investment than Southern Copper. However, First Quantum is 1.26 times more volatile than Southern Copper. It trades about 0.13 of its potential returns per unit of risk. Southern Copper is currently generating about 0.05 per unit of risk. If you would invest  1,081  in First Quantum Minerals on September 2, 2024 and sell it today you would earn a total of  276.00  from holding First Quantum Minerals or generate 25.53% return on investment over 90 days.

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

First Quantum Minerals  vs.  Southern Copper

First Quantum Minerals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Quantum Minerals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, First Quantum reported solid returns over the last few months and may actually be approaching a breakup point.

Southern Copper

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Copper are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Southern Copper may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Quantum and Southern Copper

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

The idea behind First Quantum Minerals and Southern Copper 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.