Correlation Between Firstrand and South32

Can any of the company-specific risk be diversified away by investing in both Firstrand and South32 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 Firstrand and South32 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Firstrand and South32, you can compare the effects of market volatilities on Firstrand and South32 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 Firstrand with a short position of South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of Firstrand and South32.

Diversification Opportunities for Firstrand and South32

-0.16

Correlation Coefficient

Firstrand  South32

Good diversification

The 3 months correlation between Firstrand and South32 is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Firstrand and South32 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 and Firstrand 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 Firstrand are associated (or correlated) with South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 has no effect on the direction of Firstrand i.e., Firstrand and South32 go up and down completely randomly.

Pair Corralation between Firstrand and South32

Assuming the 90 days trading horizon Firstrand is expected to under-perform the South32. But the stock apears to be less risky and, when comparing its historical volatility, Firstrand is 1.64 times less risky than South32. The stock trades about -0.11 of its potential returns per unit of risk. The South32 is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  428,500  in South32 on December 4, 2024 and sell it today you would lose (8,000) from holding South32 or give up 1.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Firstrand  vs.  South32

Firstrand

Risk-Adjusted Performance

Very Weak

Over the last 90 days Firstrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

South32

Risk-Adjusted Performance

Very Weak

Over the last 90 days South32 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, South32 is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Firstrand and South32

The main advantage of trading using opposite Firstrand and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Firstrand position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.

The idea behind Firstrand and South32 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 Transaction History module to view history of all your transactions and understand their impact on performance.