Correlation Between Kap Industrial and Anglo American

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

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

Diversification Opportunities for Kap Industrial and Anglo American

0.01

Correlation Coefficient

Kap Industrial  Anglo American

Significant diversification

The 3 months correlation between Kap and Anglo is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Kap Industrial Holdings 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 Kap Industrial 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 Kap Industrial Holdings 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 Kap Industrial i.e., Kap Industrial and Anglo American go up and down completely randomly.

Pair Corralation between Kap Industrial and Anglo American

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to generate 1.03 times more return on investment than Anglo American. However, Kap Industrial is 1.03 times more volatile than Anglo American PLC. It trades about 0.07 of its potential returns per unit of risk. Anglo American PLC is currently generating about 0.04 per unit of risk. If you would invest  20,900  in Kap Industrial Holdings on September 17, 2024 and sell it today you would earn a total of  10,600  from holding Kap Industrial Holdings or generate 50.72% return on investment over 90 days.

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

Kap Industrial Holdings  vs.  Anglo American PLC

Kap Industrial Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kap Industrial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Kap Industrial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Anglo American PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American PLC are ranked lower than 7 (%) 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 Kap Industrial and Anglo American

The main advantage of trading using opposite Kap Industrial and Anglo American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kap Industrial 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 Kap Industrial Holdings 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.