Correlation Between Thungela Resources and TerraCom

Can any of the company-specific risk be diversified away by investing in both Thungela Resources and TerraCom 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 TerraCom 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 TerraCom Limited, you can compare the effects of market volatilities on Thungela Resources and TerraCom 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 TerraCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thungela Resources and TerraCom.

Diversification Opportunities for Thungela Resources and TerraCom

0.34

Correlation Coefficient

Thungela Resources  TerraCom

Weak diversification

The 3 months correlation between Thungela and TerraCom is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Thungela Resources Limited and TerraCom Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TerraCom Limited 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 TerraCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TerraCom Limited has no effect on the direction of Thungela Resources i.e., Thungela Resources and TerraCom go up and down completely randomly.

Pair Corralation between Thungela Resources and TerraCom

Assuming the 90 days horizon Thungela Resources Limited is expected to under-perform the TerraCom. But the pink sheet apears to be less risky and, when comparing its historical volatility, Thungela Resources Limited is 3.43 times less risky than TerraCom. The pink sheet trades about -0.04 of its potential returns per unit of risk. The TerraCom Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  13.00  in TerraCom Limited on November 19, 2024 and sell it today you would earn a total of  0.00  from holding TerraCom Limited or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	17.65%
Values	Daily Returns

Thungela Resources Limited  vs.  TerraCom Limited

Thungela Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thungela Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

TerraCom Limited

Risk-Adjusted Performance

Insignificant

Over the last 90 days TerraCom Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak fundamental indicators, TerraCom reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thungela Resources and TerraCom

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

The idea behind Thungela Resources Limited and TerraCom 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.