Correlation Between Kumba Iron and Standard Bank

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

Diversification Opportunities for Kumba Iron and Standard Bank

0.1

Correlation Coefficient

Kumba Iron  Standard Bank

Average diversification

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

Pair Corralation between Kumba Iron and Standard Bank

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the Standard Bank. In addition to that, Kumba Iron is 1.9 times more volatile than Standard Bank Group. It trades about -0.09 of its total potential returns per unit of risk. Standard Bank Group is currently generating about 0.08 per unit of volatility. If you would invest  2,057,783  in Standard Bank Group on September 15, 2024 and sell it today you would earn a total of  239,117  from holding Standard Bank Group or generate 11.62% return on investment over 90 days.

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

Kumba Iron Ore  vs.  Standard Bank Group

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.

Standard Bank Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Kumba Iron Ore and Standard Bank 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.