Correlation Between Kumba Iron and ArcelorMittal

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

Diversification Opportunities for Kumba Iron and ArcelorMittal

0.28

Correlation Coefficient

Kumba Iron  ArcelorMittal

Modest diversification

The 3 months correlation between Kumba and ArcelorMittal is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Kumba Iron Ore and ArcelorMittal SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal SA ADR 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 ArcelorMittal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcelorMittal SA ADR has no effect on the direction of Kumba Iron i.e., Kumba Iron and ArcelorMittal go up and down completely randomly.

Pair Corralation between Kumba Iron and ArcelorMittal

Assuming the 90 days horizon Kumba Iron is expected to generate 5.14 times less return on investment than ArcelorMittal. In addition to that, Kumba Iron is 1.21 times more volatile than ArcelorMittal SA ADR. It trades about 0.01 of its total potential returns per unit of risk. ArcelorMittal SA ADR is currently generating about 0.08 per unit of volatility. If you would invest  2,264  in ArcelorMittal SA ADR on September 16, 2024 and sell it today you would earn a total of  207.00  from holding ArcelorMittal SA ADR or generate 9.14% return on investment over 90 days.

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

Kumba Iron Ore  vs.  ArcelorMittal SA ADR

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 current stock price disturbance, may contribute to short-term losses for the investors.

ArcelorMittal SA ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, ArcelorMittal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Kumba Iron and ArcelorMittal

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

The idea behind Kumba Iron Ore and ArcelorMittal SA ADR 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.