Correlation Between Kumba Iron and Tiger Brands

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

Diversification Opportunities for Kumba Iron and Tiger Brands

-0.55

Correlation Coefficient

Kumba Iron  Tiger Brands

Excellent diversification

The 3 months correlation between Kumba and Tiger is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Tiger Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tiger Brands 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 Tiger Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tiger Brands has no effect on the direction of Kumba Iron i.e., Kumba Iron and Tiger Brands go up and down completely randomly.

Pair Corralation between Kumba Iron and Tiger Brands

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the Tiger Brands. In addition to that, Kumba Iron is 1.46 times more volatile than Tiger Brands. It trades about -0.01 of its total potential returns per unit of risk. Tiger Brands is currently generating about 0.05 per unit of volatility. If you would invest  2,106,139  in Tiger Brands on October 15, 2024 and sell it today you would earn a total of  790,961  from holding Tiger Brands or generate 37.56% 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.  Tiger Brands

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.

Tiger Brands

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tiger Brands are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Tiger Brands exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kumba Iron and Tiger Brands

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

The idea behind Kumba Iron Ore and Tiger Brands 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.