Correlation Between ArcelorMittal South and Kumba Iron

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

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

Diversification Opportunities for ArcelorMittal South and Kumba Iron

0.22

Correlation Coefficient

ArcelorMittal South  Kumba Iron

Modest diversification

The 3 months correlation between ArcelorMittal and Kumba is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal South Africa 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 ArcelorMittal South 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 ArcelorMittal South Africa 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 ArcelorMittal South i.e., ArcelorMittal South and Kumba Iron go up and down completely randomly.

Pair Corralation between ArcelorMittal South and Kumba Iron

Assuming the 90 days trading horizon ArcelorMittal South Africa is expected to under-perform the Kumba Iron. In addition to that, ArcelorMittal South is 1.9 times more volatile than Kumba Iron Ore. It trades about -0.03 of its total potential returns per unit of risk. Kumba Iron Ore is currently generating about -0.01 per unit of volatility. If you would invest  4,530,926  in Kumba Iron Ore on September 14, 2024 and sell it today you would lose (1,074,726) from holding Kumba Iron Ore or give up 23.72% of portfolio value over 90 days.

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

ArcelorMittal South Africa  vs.  Kumba Iron Ore

ArcelorMittal South

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal South Africa are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, ArcelorMittal South 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 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 ArcelorMittal South and Kumba Iron

The main advantage of trading using opposite ArcelorMittal South and Kumba Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ArcelorMittal South 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 ArcelorMittal South Africa 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.