Correlation Between Kumba Iron and SPAR

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

Diversification Opportunities for Kumba Iron and SPAR

-0.26

Correlation Coefficient

Kumba Iron  SPAR

Very good diversification

The 3 months correlation between Kumba and SPAR is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and SPAR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPAR 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 SPAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPAR Group has no effect on the direction of Kumba Iron i.e., Kumba Iron and SPAR go up and down completely randomly.

Pair Corralation between Kumba Iron and SPAR

Assuming the 90 days trading horizon Kumba Iron Ore is expected to generate 1.64 times more return on investment than SPAR. However, Kumba Iron is 1.64 times more volatile than SPAR Group. It trades about 0.22 of its potential returns per unit of risk. SPAR Group is currently generating about -0.31 per unit of risk. If you would invest  3,251,100  in Kumba Iron Ore on October 26, 2024 and sell it today you would earn a total of  229,000  from holding Kumba Iron Ore or generate 7.04% return on investment over 90 days.

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

Kumba Iron Ore  vs.  SPAR Group

Kumba Iron Ore

Risk-Adjusted Performance

0 of 100

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.

SPAR Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPAR Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, SPAR may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Kumba Iron and SPAR

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

The idea behind Kumba Iron Ore and SPAR 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.