Correlation Between Kumba Iron and Investec

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

Diversification Opportunities for Kumba Iron and Investec

-0.15

Correlation Coefficient

Kumba Iron  Investec

Good diversification

The 3 months correlation between Kumba and Investec is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Investec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec 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 Investec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec has no effect on the direction of Kumba Iron i.e., Kumba Iron and Investec go up and down completely randomly.

Pair Corralation between Kumba Iron and Investec

Assuming the 90 days trading horizon Kumba Iron Ore is expected to generate 2.09 times more return on investment than Investec. However, Kumba Iron is 2.09 times more volatile than Investec. It trades about 0.02 of its potential returns per unit of risk. Investec is currently generating about -0.08 per unit of risk. If you would invest  3,298,700  in Kumba Iron Ore on December 24, 2024 and sell it today you would earn a total of  39,600  from holding Kumba Iron Ore or generate 1.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Kumba Iron Ore  vs.  Investec

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Investec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Investec has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Kumba Iron and Investec

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

The idea behind Kumba Iron Ore and Investec 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.