Correlation Between Legacy Iron and Coles

Can any of the company-specific risk be diversified away by investing in both Legacy Iron and Coles 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 Legacy Iron and Coles into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Legacy Iron Ore and Coles Group, you can compare the effects of market volatilities on Legacy Iron and Coles 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 Legacy Iron with a short position of Coles. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legacy Iron and Coles.

Diversification Opportunities for Legacy Iron and Coles

0.33

Correlation Coefficient

Legacy Iron  Coles

Weak diversification

The 3 months correlation between Legacy and Coles is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Legacy Iron Ore and Coles Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coles Group and Legacy 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 Legacy Iron Ore are associated (or correlated) with Coles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coles Group has no effect on the direction of Legacy Iron i.e., Legacy Iron and Coles go up and down completely randomly.

Pair Corralation between Legacy Iron and Coles

Assuming the 90 days trading horizon Legacy Iron Ore is expected to generate 5.23 times more return on investment than Coles. However, Legacy Iron is 5.23 times more volatile than Coles Group. It trades about 0.08 of its potential returns per unit of risk. Coles Group is currently generating about 0.17 per unit of risk. If you would invest  0.90  in Legacy Iron Ore on December 2, 2024 and sell it today you would earn a total of  0.10  from holding Legacy Iron Ore or generate 11.11% return on investment over 90 days.

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

Legacy Iron Ore  vs.  Coles Group

Legacy Iron Ore

Risk-Adjusted Performance

Very Weak

Over the last 90 days Legacy Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Legacy Iron is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Coles Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coles Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Coles may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Legacy Iron and Coles

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

The idea behind Legacy Iron Ore and Coles 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.