Correlation Between Firstrand and Anglo American

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

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

Diversification Opportunities for Firstrand and Anglo American

-0.28

Correlation Coefficient

Firstrand  Anglo American

Very good diversification

The 3 months correlation between Firstrand and Anglo is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Firstrand and Anglo American PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American PLC and Firstrand 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 Firstrand are associated (or correlated) with Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American PLC has no effect on the direction of Firstrand i.e., Firstrand and Anglo American go up and down completely randomly.

Pair Corralation between Firstrand and Anglo American

Assuming the 90 days trading horizon Firstrand is expected to generate 10.33 times less return on investment than Anglo American. But when comparing it to its historical volatility, Firstrand is 1.8 times less risky than Anglo American. It trades about 0.02 of its potential returns per unit of risk. Anglo American PLC is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,868,000  in Anglo American PLC on September 16, 2024 and sell it today you would earn a total of  745,500  from holding Anglo American PLC or generate 15.31% return on investment over 90 days.

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

Firstrand  vs.  Anglo American PLC

Firstrand

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Firstrand 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, Firstrand is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Anglo American PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Anglo American exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Firstrand and Anglo American

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

The idea behind Firstrand and Anglo American PLC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.