Correlation Between Kumba Iron and AECI

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

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

Diversification Opportunities for Kumba Iron and AECI

0.05

Correlation Coefficient

Kumba Iron  AECI

Significant diversification

The 3 months correlation between Kumba and AECI is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and AECI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AECI and Kumba Iron 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 Kumba Iron Ore are associated (or correlated) with AECI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AECI has no effect on the direction of Kumba Iron i.e., Kumba Iron and AECI go up and down completely randomly.

Pair Corralation between Kumba Iron and AECI

Assuming the 90 days trading horizon Kumba Iron Ore is expected to generate 1.32 times more return on investment than AECI. However, Kumba Iron is 1.32 times more volatile than AECI. It trades about 0.22 of its potential returns per unit of risk. AECI is currently generating about -0.15 per unit of risk. If you would invest  3,251,100  in Kumba Iron Ore on October 26, 2024 and sell it today you would earn a total of  229,000  from holding Kumba Iron Ore or generate 7.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Kumba Iron Ore  vs.  AECI

Kumba Iron Ore

Risk-Adjusted Performance

0 of 100

Weak

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

AECI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AECI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Kumba Iron and AECI

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

The idea behind Kumba Iron Ore and AECI 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.