Correlation Between Kumba Iron and Investec PLC

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

Diversification Opportunities for Kumba Iron and Investec PLC

-0.1

Correlation Coefficient

Kumba Iron  Investec PLC

Good diversification

The 3 months correlation between Kumba and Investec is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Investec PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec PLC 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 PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec PLC has no effect on the direction of Kumba Iron i.e., Kumba Iron and Investec PLC go up and down completely randomly.

Pair Corralation between Kumba Iron and Investec PLC

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the Investec PLC. In addition to that, Kumba Iron is 1.64 times more volatile than Investec PLC. It trades about -0.09 of its total potential returns per unit of risk. Investec PLC is currently generating about -0.01 per unit of volatility. If you would invest  1,279,385  in Investec PLC on October 8, 2024 and sell it today you would lose (13,885) from holding Investec PLC or give up 1.09% of portfolio value over 90 days.

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

Kumba Iron Ore  vs.  Investec PLC

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 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.

Investec PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investec PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Investec PLC 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 Investec PLC

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

The idea behind Kumba Iron Ore and Investec PLC 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.