Correlation Between Allan Gray and Kumba Iron

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

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

Diversification Opportunities for Allan Gray and Kumba Iron

-0.03

Correlation Coefficient

Allan Gray  Kumba Iron

Good diversification

The 3 months correlation between Allan and Kumba is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Allan Gray Equity 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 Allan Gray 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 Allan Gray Equity 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 Allan Gray i.e., Allan Gray and Kumba Iron go up and down completely randomly.

Pair Corralation between Allan Gray and Kumba Iron

Assuming the 90 days trading horizon Allan Gray Equity is expected to generate 0.19 times more return on investment than Kumba Iron. However, Allan Gray Equity is 5.28 times less risky than Kumba Iron. It trades about 0.1 of its potential returns per unit of risk. Kumba Iron Ore is currently generating about 0.0 per unit of risk. If you would invest  59,004  in Allan Gray Equity on September 14, 2024 and sell it today you would earn a total of  1,789  from holding Allan Gray Equity or generate 3.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Allan Gray Equity  vs.  Kumba Iron Ore

Allan Gray Equity

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allan Gray Equity are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. Despite fairly strong basic indicators, Allan Gray is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

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 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 Allan Gray and Kumba Iron

The main advantage of trading using opposite Allan Gray and Kumba Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allan Gray 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 Allan Gray Equity 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.