Correlation Between Kumba Iron and RMB Holdings

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

Diversification Opportunities for Kumba Iron and RMB Holdings

-0.59

Correlation Coefficient

Kumba Iron  RMB Holdings

Excellent diversification

The 3 months correlation between Kumba and RMB is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and RMB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMB 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 RMB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMB Holdings has no effect on the direction of Kumba Iron i.e., Kumba Iron and RMB Holdings go up and down completely randomly.

Pair Corralation between Kumba Iron and RMB Holdings

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the RMB Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Kumba Iron Ore is 1.35 times less risky than RMB Holdings. The stock trades about -0.07 of its potential returns per unit of risk. The RMB Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  5,700  in RMB Holdings on October 5, 2024 and sell it today you would lose (1,300) from holding RMB Holdings or give up 22.81% 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.  RMB 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 February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

RMB Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RMB Holdings 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, RMB Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Kumba Iron and RMB Holdings

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

The idea behind Kumba Iron Ore and RMB 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.