Correlation Between Thungela Resources and Nampak

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

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

Diversification Opportunities for Thungela Resources and Nampak

0.19

Correlation Coefficient

Thungela Resources  Nampak

Average diversification

The 3 months correlation between Thungela and Nampak is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Thungela Resources Limited and Nampak in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nampak and Thungela Resources 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 Thungela Resources Limited are associated (or correlated) with Nampak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nampak has no effect on the direction of Thungela Resources i.e., Thungela Resources and Nampak go up and down completely randomly.

Pair Corralation between Thungela Resources and Nampak

Assuming the 90 days trading horizon Thungela Resources Limited is expected to under-perform the Nampak. But the stock apears to be less risky and, when comparing its historical volatility, Thungela Resources Limited is 25.14 times less risky than Nampak. The stock trades about -0.01 of its potential returns per unit of risk. The Nampak is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,575,000  in Nampak on September 24, 2024 and sell it today you would earn a total of  1,489,500  from holding Nampak or generate 57.84% return on investment over 90 days.

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

Thungela Resources Limited  vs.  Nampak

Thungela Resources

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Thungela Resources Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Thungela Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nampak

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nampak 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.

Pair Trading with Thungela Resources and Nampak

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

The idea behind Thungela Resources Limited and Nampak 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.