Correlation Between Glencore PLC and South32

Can any of the company-specific risk be diversified away by investing in both Glencore PLC and South32 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 Glencore PLC and South32 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Glencore PLC ADR and South32 Limited, you can compare the effects of market volatilities on Glencore PLC and South32 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 Glencore PLC with a short position of South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of Glencore PLC and South32.

Diversification Opportunities for Glencore PLC and South32

0.27

Correlation Coefficient

Glencore PLC  South32

Modest diversification

The 3 months correlation between Glencore and South32 is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Glencore PLC ADR and South32 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 Limited and Glencore PLC 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 Glencore PLC ADR are associated (or correlated) with South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 Limited has no effect on the direction of Glencore PLC i.e., Glencore PLC and South32 go up and down completely randomly.

Pair Corralation between Glencore PLC and South32

Assuming the 90 days horizon Glencore PLC is expected to generate 26.33 times less return on investment than South32. But when comparing it to its historical volatility, Glencore PLC ADR is 1.77 times less risky than South32. It trades about 0.01 of its potential returns per unit of risk. South32 Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  190.00  in South32 Limited on September 13, 2024 and sell it today you would earn a total of  36.00  from holding South32 Limited or generate 18.95% return on investment over 90 days.

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

Glencore PLC ADR  vs.  South32 Limited

Glencore PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Glencore PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Glencore PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

South32 Limited

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in South32 Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, South32 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Glencore PLC and South32

The main advantage of trading using opposite Glencore PLC and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Glencore PLC position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.

The idea behind Glencore PLC ADR and South32 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.