Correlation Between Titan Company and Kumba Iron

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

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

Diversification Opportunities for Titan Company and Kumba Iron

0.02

Correlation Coefficient

Titan Company  Kumba Iron

Significant diversification

The 3 months correlation between Titan and Kumba is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Titan Company Limited 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 Titan Company 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 Titan Company Limited 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 Titan Company i.e., Titan Company and Kumba Iron go up and down completely randomly.

Pair Corralation between Titan Company and Kumba Iron

Assuming the 90 days trading horizon Titan Company Limited is expected to under-perform the Kumba Iron. But the stock apears to be less risky and, when comparing its historical volatility, Titan Company Limited is 1.64 times less risky than Kumba Iron. The stock trades about -0.05 of its potential returns per unit of risk. The Kumba Iron Ore is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,220,200  in Kumba Iron Ore on December 30, 2024 and sell it today you would earn a total of  41,000  from holding Kumba Iron Ore or generate 1.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Titan Company Limited  vs.  Kumba Iron Ore

Titan Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Titan Company Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Titan Company is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Kumba Iron Ore

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kumba Iron Ore are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Kumba Iron is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Titan Company and Kumba Iron

The main advantage of trading using opposite Titan Company and Kumba Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Titan Company 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 Titan Company Limited 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..