Correlation Between Kumba Iron and Trencor

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

Diversification Opportunities for Kumba Iron and Trencor

-0.63

Correlation Coefficient

Kumba Iron  Trencor

Excellent diversification

The 3 months correlation between Kumba and Trencor is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Trencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trencor 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 Trencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trencor has no effect on the direction of Kumba Iron i.e., Kumba Iron and Trencor go up and down completely randomly.

Pair Corralation between Kumba Iron and Trencor

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the Trencor. In addition to that, Kumba Iron is 1.56 times more volatile than Trencor. It trades about -0.1 of its total potential returns per unit of risk. Trencor is currently generating about 0.27 per unit of volatility. If you would invest  75,800  in Trencor on October 12, 2024 and sell it today you would earn a total of  4,000  from holding Trencor or generate 5.28% return on investment over 90 days.

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

Kumba Iron Ore  vs.  Trencor

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 latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Trencor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trencor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Trencor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kumba Iron and Trencor

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

The idea behind Kumba Iron Ore and Trencor 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.