Correlation Between Kumba Iron and Investec Limited

Can any of the company-specific risk be diversified away by investing in both Kumba Iron and Investec Limited 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 Investec Limited 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 Investec Limited NON, you can compare the effects of market volatilities on Kumba Iron and Investec Limited 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 Investec Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kumba Iron and Investec Limited.

Diversification Opportunities for Kumba Iron and Investec Limited

0.09

Correlation Coefficient

Kumba Iron  Investec Limited

Significant diversification

The 3 months correlation between Kumba and Investec is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Investec Limited NON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec Limited NON 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 Investec Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec Limited NON has no effect on the direction of Kumba Iron i.e., Kumba Iron and Investec Limited go up and down completely randomly.

Pair Corralation between Kumba Iron and Investec Limited

Assuming the 90 days trading horizon Kumba Iron Ore is expected to generate 1.91 times more return on investment than Investec Limited. However, Kumba Iron is 1.91 times more volatile than Investec Limited NON. It trades about 0.05 of its potential returns per unit of risk. Investec Limited NON is currently generating about 0.05 per unit of risk. If you would invest  3,250,000  in Kumba Iron Ore on September 4, 2024 and sell it today you would earn a total of  207,700  from holding Kumba Iron Ore or generate 6.39% 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.  Investec Limited NON

Kumba Iron Ore

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kumba Iron Ore are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Kumba Iron may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Investec Limited NON

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Limited NON are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Investec Limited is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Kumba Iron and Investec Limited

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

The idea behind Kumba Iron Ore and Investec Limited NON 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.