Correlation Between Kumba Iron and Mesabi Trust

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

Diversification Opportunities for Kumba Iron and Mesabi Trust

-0.42

Correlation Coefficient

Kumba Iron  Mesabi Trust

Very good diversification

The 3 months correlation between Kumba and Mesabi is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and Mesabi Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesabi Trust 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 Mesabi Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesabi Trust has no effect on the direction of Kumba Iron i.e., Kumba Iron and Mesabi Trust go up and down completely randomly.

Pair Corralation between Kumba Iron and Mesabi Trust

Assuming the 90 days horizon Kumba Iron is expected to generate 10.71 times less return on investment than Mesabi Trust. In addition to that, Kumba Iron is 1.23 times more volatile than Mesabi Trust. It trades about 0.01 of its total potential returns per unit of risk. Mesabi Trust is currently generating about 0.17 per unit of volatility. If you would invest  2,070  in Mesabi Trust on September 15, 2024 and sell it today you would earn a total of  471.00  from holding Mesabi Trust or generate 22.75% return on investment over 90 days.

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

Kumba Iron Ore  vs.  Mesabi Trust

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 fairly strong basic indicators, Kumba Iron is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Mesabi Trust

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mesabi Trust are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Mesabi Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kumba Iron and Mesabi Trust

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

The idea behind Kumba Iron Ore and Mesabi Trust 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.