Correlation Between South32 ADR and Sayona Mining

Can any of the company-specific risk be diversified away by investing in both South32 ADR and Sayona Mining 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 South32 ADR and Sayona Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between South32 ADR and Sayona Mining Limited, you can compare the effects of market volatilities on South32 ADR and Sayona Mining 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 South32 ADR with a short position of Sayona Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 ADR and Sayona Mining.

Diversification Opportunities for South32 ADR and Sayona Mining

0.8

Correlation Coefficient

South32 ADR  Sayona Mining

Very poor diversification

The 3 months correlation between South32 and Sayona is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding South32 ADR and Sayona Mining Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sayona Mining Limited and South32 ADR 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 South32 ADR are associated (or correlated) with Sayona Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sayona Mining Limited has no effect on the direction of South32 ADR i.e., South32 ADR and Sayona Mining go up and down completely randomly.

Pair Corralation between South32 ADR and Sayona Mining

Assuming the 90 days horizon South32 ADR is expected to generate 0.32 times more return on investment than Sayona Mining. However, South32 ADR is 3.16 times less risky than Sayona Mining. It trades about 0.0 of its potential returns per unit of risk. Sayona Mining Limited is currently generating about -0.01 per unit of risk. If you would invest  1,222  in South32 ADR on September 2, 2024 and sell it today you would lose (11.00) from holding South32 ADR or give up 0.9% of portfolio value over 90 days.

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

South32 ADR  vs.  Sayona Mining Limited

South32 ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South32 ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical indicators, South32 ADR showed solid returns over the last few months and may actually be approaching a breakup point.

Sayona Mining Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sayona Mining Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sayona Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with South32 ADR and Sayona Mining

The main advantage of trading using opposite South32 ADR and Sayona Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 ADR position performs unexpectedly, Sayona Mining 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 Sayona Mining will offset losses from the drop in Sayona Mining's long position.

The idea behind South32 ADR and Sayona Mining Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.