Correlation Between Glencore PLC and South32 ADR

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

By analyzing existing cross correlation between Glencore PLC ADR and South32 ADR, you can compare the effects of market volatilities on Glencore PLC and South32 ADR 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 South32 ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Glencore PLC and South32 ADR.

Diversification Opportunities for Glencore PLC and South32 ADR

-0.36

Correlation Coefficient

Glencore PLC  South32 ADR

Very good diversification

The 3 months correlation between Glencore and South32 is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Glencore PLC ADR and South32 ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 ADR 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 ADR are associated (or correlated) with South32 ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 ADR has no effect on the direction of Glencore PLC i.e., Glencore PLC and South32 ADR go up and down completely randomly.

Pair Corralation between Glencore PLC and South32 ADR

Assuming the 90 days horizon Glencore PLC ADR is expected to under-perform the South32 ADR. But the pink sheet apears to be less risky and, when comparing its historical volatility, Glencore PLC ADR is 1.08 times less risky than South32 ADR. The pink sheet trades about -0.12 of its potential returns per unit of risk. The South32 ADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,049  in South32 ADR on December 30, 2024 and sell it today you would earn a total of  11.00  from holding South32 ADR or generate 1.05% return on investment over 90 days.

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

Glencore PLC ADR  vs.  South32 ADR

Glencore PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Glencore PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

South32 ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in South32 ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, South32 ADR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Glencore PLC and South32 ADR

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

The idea behind Glencore PLC ADR and South32 ADR 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.