Correlation Between MC Mining and Exxaro Resources

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

By analyzing existing cross correlation between MC Mining and Exxaro Resources, you can compare the effects of market volatilities on MC Mining and Exxaro Resources 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 MC Mining with a short position of Exxaro Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of MC Mining and Exxaro Resources.

Diversification Opportunities for MC Mining and Exxaro Resources

-0.37

Correlation Coefficient

MC Mining  Exxaro Resources

Very good diversification

The 3 months correlation between MCZ and Exxaro is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding MC Mining and Exxaro Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxaro Resources and MC Mining 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 MC Mining are associated (or correlated) with Exxaro Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxaro Resources has no effect on the direction of MC Mining i.e., MC Mining and Exxaro Resources go up and down completely randomly.

Pair Corralation between MC Mining and Exxaro Resources

Assuming the 90 days trading horizon MC Mining is expected to generate 1.8 times more return on investment than Exxaro Resources. However, MC Mining is 1.8 times more volatile than Exxaro Resources. It trades about 0.08 of its potential returns per unit of risk. Exxaro Resources is currently generating about -0.07 per unit of risk. If you would invest  15,500  in MC Mining on September 24, 2024 and sell it today you would earn a total of  1,500  from holding MC Mining or generate 9.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

MC Mining  vs.  Exxaro Resources

MC Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MC Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MC Mining is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Exxaro Resources

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Exxaro Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Exxaro Resources is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MC Mining and Exxaro Resources

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

The idea behind MC Mining and Exxaro Resources 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.