Correlation Between Fortescue Metals and IGO

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

By analyzing existing cross correlation between Fortescue Metals Group and IGO Limited, you can compare the effects of market volatilities on Fortescue Metals and IGO 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 Fortescue Metals with a short position of IGO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and IGO.

Diversification Opportunities for Fortescue Metals and IGO

-0.3

Correlation Coefficient

Fortescue Metals  IGO

Very good diversification

The 3 months correlation between Fortescue and IGO is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and IGO Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGO Limited and Fortescue Metals 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 Fortescue Metals Group are associated (or correlated) with IGO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGO Limited has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and IGO go up and down completely randomly.

Pair Corralation between Fortescue Metals and IGO

Assuming the 90 days horizon Fortescue Metals is expected to generate 2.0 times less return on investment than IGO. In addition to that, Fortescue Metals is 1.47 times more volatile than IGO Limited. It trades about 0.04 of its total potential returns per unit of risk. IGO Limited is currently generating about 0.1 per unit of volatility. If you would invest  609.00  in IGO Limited on September 17, 2024 and sell it today you would earn a total of  71.00  from holding IGO Limited or generate 11.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Fortescue Metals Group  vs.  IGO Limited

Fortescue Metals

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fortescue Metals Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Fortescue Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

IGO Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IGO Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, IGO may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fortescue Metals and IGO

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

The idea behind Fortescue Metals Group and IGO 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.