Correlation Between Kumba Iron and Master Drilling

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

Diversification Opportunities for Kumba Iron and Master Drilling

0.34

Correlation Coefficient

Kumba Iron  Master Drilling

Weak diversification

The 3 months correlation between Kumba and Master is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Master Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Master Drilling Group 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 Master Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Master Drilling Group has no effect on the direction of Kumba Iron i.e., Kumba Iron and Master Drilling go up and down completely randomly.

Pair Corralation between Kumba Iron and Master Drilling

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the Master Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Kumba Iron Ore is 1.01 times less risky than Master Drilling. The stock trades about -0.02 of its potential returns per unit of risk. The Master Drilling Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  129,800  in Master Drilling Group on December 4, 2024 and sell it today you would earn a total of  10,100  from holding Master Drilling Group or generate 7.78% 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.  Master Drilling Group

Kumba Iron Ore

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kumba Iron Ore are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Kumba Iron may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Master Drilling Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Master Drilling Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Master Drilling may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Kumba Iron and Master Drilling

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

The idea behind Kumba Iron Ore and Master Drilling Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.