Correlation Between Randgold Exploration and Kumba Iron

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

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

Diversification Opportunities for Randgold Exploration and Kumba Iron

0.31

Correlation Coefficient

Randgold Exploration  Kumba Iron

Weak diversification

The 3 months correlation between Randgold and Kumba is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Randgold Exploration and Kumba Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumba Iron Ore and Randgold Exploration 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 Randgold Exploration are associated (or correlated) with Kumba Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumba Iron Ore has no effect on the direction of Randgold Exploration i.e., Randgold Exploration and Kumba Iron go up and down completely randomly.

Pair Corralation between Randgold Exploration and Kumba Iron

Assuming the 90 days trading horizon Randgold Exploration is expected to generate 2.94 times more return on investment than Kumba Iron. However, Randgold Exploration is 2.94 times more volatile than Kumba Iron Ore. It trades about 0.05 of its potential returns per unit of risk. Kumba Iron Ore is currently generating about 0.06 per unit of risk. If you would invest  7,000  in Randgold Exploration on September 5, 2024 and sell it today you would earn a total of  500.00  from holding Randgold Exploration or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Randgold Exploration  vs.  Kumba Iron Ore

Randgold Exploration

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Randgold Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Randgold Exploration exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Randgold Exploration and Kumba Iron

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

The idea behind Randgold Exploration and Kumba Iron Ore 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.