Correlation Between Kumba Iron and Bytes Technology

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

Diversification Opportunities for Kumba Iron and Bytes Technology

-0.02

Correlation Coefficient

Kumba Iron  Bytes Technology

Good diversification

The 3 months correlation between Kumba and Bytes is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Bytes Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bytes Technology 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 Bytes Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bytes Technology has no effect on the direction of Kumba Iron i.e., Kumba Iron and Bytes Technology go up and down completely randomly.

Pair Corralation between Kumba Iron and Bytes Technology

Assuming the 90 days trading horizon Kumba Iron is expected to generate 6.58 times less return on investment than Bytes Technology. But when comparing it to its historical volatility, Kumba Iron Ore is 1.06 times less risky than Bytes Technology. It trades about 0.02 of its potential returns per unit of risk. Bytes Technology is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  980,000  in Bytes Technology on December 29, 2024 and sell it today you would earn a total of  211,100  from holding Bytes Technology or generate 21.54% return on investment over 90 days.

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

Kumba Iron Ore  vs.  Bytes Technology

Kumba Iron Ore

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kumba Iron Ore are ranked lower than 1 (%) 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.

Bytes Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bytes Technology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Bytes Technology exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kumba Iron and Bytes Technology

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

The idea behind Kumba Iron Ore and Bytes Technology 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.