Correlation Between Kumba Iron and Reinet Investments

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

Diversification Opportunities for Kumba Iron and Reinet Investments

-0.47

Correlation Coefficient

Kumba Iron  Reinet Investments

Very good diversification

The 3 months correlation between Kumba and Reinet is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Reinet Investments SCA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reinet Investments SCA 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 Reinet Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reinet Investments SCA has no effect on the direction of Kumba Iron i.e., Kumba Iron and Reinet Investments go up and down completely randomly.

Pair Corralation between Kumba Iron and Reinet Investments

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the Reinet Investments. In addition to that, Kumba Iron is 1.91 times more volatile than Reinet Investments SCA. It trades about -0.01 of its total potential returns per unit of risk. Reinet Investments SCA is currently generating about 0.06 per unit of volatility. If you would invest  3,283,231  in Reinet Investments SCA on September 15, 2024 and sell it today you would earn a total of  1,346,769  from holding Reinet Investments SCA or generate 41.02% return on investment over 90 days.

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

Kumba Iron Ore  vs.  Reinet Investments SCA

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 rather sound technical and fundamental indicators, Kumba Iron is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Reinet Investments SCA

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Kumba Iron Ore and Reinet Investments SCA 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.