Correlation Between Glencore PLC and Fortescue Metals

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

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

Diversification Opportunities for Glencore PLC and Fortescue Metals

0.78

Correlation Coefficient

Glencore PLC  Fortescue Metals

Poor diversification

The 3 months correlation between Glencore and Fortescue is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Glencore PLC and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue Metals and Glencore PLC 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 Glencore PLC are associated (or correlated) with Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of Glencore PLC i.e., Glencore PLC and Fortescue Metals go up and down completely randomly.

Pair Corralation between Glencore PLC and Fortescue Metals

Assuming the 90 days horizon Glencore PLC is expected to under-perform the Fortescue Metals. But the pink sheet apears to be less risky and, when comparing its historical volatility, Glencore PLC is 1.38 times less risky than Fortescue Metals. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Fortescue Metals Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,180  in Fortescue Metals Group on September 16, 2024 and sell it today you would earn a total of  60.00  from holding Fortescue Metals Group or generate 5.08% return on investment over 90 days.

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

Glencore PLC  vs.  Fortescue Metals Group

Glencore PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fortescue Metals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fortescue Metals Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Fortescue Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Glencore PLC and Fortescue Metals

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

The idea behind Glencore PLC and Fortescue Metals Group 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.