Correlation Between Kumba Iron and Afine Investments

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

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

Diversification Opportunities for Kumba Iron and Afine Investments

0.06

Correlation Coefficient

Kumba Iron  Afine Investments

Significant diversification

The 3 months correlation between Kumba and Afine is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Afine Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Afine Investments and Kumba Iron 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 Kumba Iron Ore are associated (or correlated) with Afine Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Afine Investments has no effect on the direction of Kumba Iron i.e., Kumba Iron and Afine Investments go up and down completely randomly.

Pair Corralation between Kumba Iron and Afine Investments

Assuming the 90 days trading horizon Kumba Iron is expected to generate 20.32 times less return on investment than Afine Investments. But when comparing it to its historical volatility, Kumba Iron Ore is 1.27 times less risky than Afine Investments. It trades about 0.01 of its potential returns per unit of risk. Afine Investments is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  40,000  in Afine Investments on September 1, 2024 and sell it today you would earn a total of  5,000  from holding Afine Investments or generate 12.5% return on investment over 90 days.

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

Kumba Iron Ore  vs.  Afine Investments

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.

Afine Investments

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Kumba Iron and Afine Investments

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

The idea behind Kumba Iron Ore and Afine Investments 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.