Correlation Between Kumba Iron and Sasol

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

Diversification Opportunities for Kumba Iron and Sasol

0.23

Correlation Coefficient

Kumba Iron  Sasol

Modest diversification

The 3 months correlation between Kumba and Sasol is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Sasol Ltd Bee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol Ltd Bee 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 Sasol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sasol Ltd Bee has no effect on the direction of Kumba Iron i.e., Kumba Iron and Sasol go up and down completely randomly.

Pair Corralation between Kumba Iron and Sasol

Assuming the 90 days trading horizon Kumba Iron is expected to generate 10.45 times less return on investment than Sasol. But when comparing it to its historical volatility, Kumba Iron Ore is 3.04 times less risky than Sasol. It trades about 0.02 of its potential returns per unit of risk. Sasol Ltd Bee is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  420,000  in Sasol Ltd Bee on December 28, 2024 and sell it today you would earn a total of  85,000  from holding Sasol Ltd Bee or generate 20.24% 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.  Sasol Ltd Bee

Kumba Iron Ore

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kumba Iron Ore are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Sasol Ltd Bee

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sasol Ltd Bee are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Sasol sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kumba Iron and Sasol

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

The idea behind Kumba Iron Ore and Sasol Ltd Bee 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.