Correlation Between Kumba Iron and Pan African

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

Diversification Opportunities for Kumba Iron and Pan African

0.06

Correlation Coefficient

Kumba Iron  Pan African

Significant diversification

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

Pair Corralation between Kumba Iron and Pan African

Assuming the 90 days trading horizon Kumba Iron Ore is expected to under-perform the Pan African. But the stock apears to be less risky and, when comparing its historical volatility, Kumba Iron Ore is 1.12 times less risky than Pan African. The stock trades about -0.01 of its potential returns per unit of risk. The Pan African Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  35,800  in Pan African Resources on September 5, 2024 and sell it today you would earn a total of  49,000  from holding Pan African Resources or generate 136.87% 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.  Pan African Resources

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.

Pan African Resources

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pan African Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Pan African exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kumba Iron and Pan African

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

The idea behind Kumba Iron Ore and Pan African Resources 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.