Correlation Between Kumba Iron and Anglo American

Can any of the company-specific risk be diversified away by investing in both Kumba Iron and Anglo American 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 Anglo American 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 Anglo American Platinum, you can compare the effects of market volatilities on Kumba Iron and Anglo American 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 Anglo American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kumba Iron and Anglo American.

Diversification Opportunities for Kumba Iron and Anglo American

0.39

Correlation Coefficient

Kumba Iron  Anglo American

Weak diversification

The 3 months correlation between Kumba and Anglo is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Anglo American Platinum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American Platinum 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American Platinum has no effect on the direction of Kumba Iron i.e., Kumba Iron and Anglo American go up and down completely randomly.

Pair Corralation between Kumba Iron and Anglo American

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the Anglo American. But the stock apears to be less risky and, when comparing its historical volatility, Kumba Iron Ore is 1.43 times less risky than Anglo American. The stock trades about -0.03 of its potential returns per unit of risk. The Anglo American Platinum is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6,890,032  in Anglo American Platinum on October 25, 2024 and sell it today you would lose (755,532) from holding Anglo American Platinum or give up 10.97% of portfolio value over 90 days.

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

Kumba Iron Ore  vs.  Anglo American Platinum

Kumba Iron Ore

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kumba Iron Ore are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Anglo American Platinum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anglo American Platinum 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 Anglo American

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

The idea behind Kumba Iron Ore and Anglo American Platinum 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.