Correlation Between Kumba Iron and Capitec Bank

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

Diversification Opportunities for Kumba Iron and Capitec Bank

-0.57

Correlation Coefficient

Kumba Iron  Capitec Bank

Excellent diversification

The 3 months correlation between Kumba and Capitec is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Capitec Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitec Bank Holdings 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 Capitec Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitec Bank Holdings has no effect on the direction of Kumba Iron i.e., Kumba Iron and Capitec Bank go up and down completely randomly.

Pair Corralation between Kumba Iron and Capitec Bank

Assuming the 90 days trading horizon Kumba Iron Ore is expected to generate 2.18 times more return on investment than Capitec Bank. However, Kumba Iron is 2.18 times more volatile than Capitec Bank Holdings. It trades about -0.02 of its potential returns per unit of risk. Capitec Bank Holdings is currently generating about -0.25 per unit of risk. If you would invest  3,345,300  in Kumba Iron Ore on September 26, 2024 and sell it today you would lose (46,600) from holding Kumba Iron Ore or give up 1.39% of portfolio value over 90 days.

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

Kumba Iron Ore  vs.  Capitec Bank Holdings

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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Capitec Bank Holdings

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Capitec Bank Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Capitec Bank 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 Capitec Bank

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

The idea behind Kumba Iron Ore and Capitec Bank Holdings 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 CEOs Directory module to screen CEOs from public companies around the world.