Correlation Between Tiger Brands and Kumba Iron

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

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

Diversification Opportunities for Tiger Brands and Kumba Iron

-0.41

Correlation Coefficient

Tiger Brands  Kumba Iron

Very good diversification

The 3 months correlation between Tiger and Kumba is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Tiger Brands and Kumba Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumba Iron Ore and Tiger Brands 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 Tiger Brands are associated (or correlated) with Kumba Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumba Iron Ore has no effect on the direction of Tiger Brands i.e., Tiger Brands and Kumba Iron go up and down completely randomly.

Pair Corralation between Tiger Brands and Kumba Iron

Assuming the 90 days trading horizon Tiger Brands is expected to generate 0.69 times more return on investment than Kumba Iron. However, Tiger Brands is 1.46 times less risky than Kumba Iron. It trades about 0.05 of its potential returns per unit of risk. Kumba Iron Ore is currently generating about -0.02 per unit of risk. If you would invest  2,087,407  in Tiger Brands on September 26, 2024 and sell it today you would earn a total of  822,993  from holding Tiger Brands or generate 39.43% return on investment over 90 days.

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

Tiger Brands  vs.  Kumba Iron Ore

Tiger Brands

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tiger Brands are ranked lower than 18 (%) 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.

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tiger Brands and Kumba Iron

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

The idea behind Tiger Brands and Kumba Iron Ore 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.