Correlation Between Kumba Iron and AngloGold Ashanti

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

Diversification Opportunities for Kumba Iron and AngloGold Ashanti

0.25

Correlation Coefficient

Kumba Iron  AngloGold Ashanti

Modest diversification

The 3 months correlation between Kumba and AngloGold is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and AngloGold Ashanti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AngloGold Ashanti 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 AngloGold Ashanti. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AngloGold Ashanti has no effect on the direction of Kumba Iron i.e., Kumba Iron and AngloGold Ashanti go up and down completely randomly.

Pair Corralation between Kumba Iron and AngloGold Ashanti

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the AngloGold Ashanti. But the stock apears to be less risky and, when comparing its historical volatility, Kumba Iron Ore is 1.05 times less risky than AngloGold Ashanti. The stock trades about -0.06 of its potential returns per unit of risk. The AngloGold Ashanti is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,098,109  in AngloGold Ashanti on October 11, 2024 and sell it today you would earn a total of  1,567,191  from holding AngloGold Ashanti or generate 50.59% return on investment over 90 days.

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

Kumba Iron Ore  vs.  AngloGold Ashanti

Kumba Iron Ore

Risk-Adjusted Performance

0 of 100

Very 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 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.

AngloGold Ashanti

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Kumba Iron and AngloGold Ashanti

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

The idea behind Kumba Iron Ore and AngloGold Ashanti 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.