Correlation Between South32 and Glencore PLC

Can any of the company-specific risk be diversified away by investing in both South32 and Glencore PLC 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 South32 and Glencore PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between South32 and Glencore PLC, you can compare the effects of market volatilities on South32 and Glencore PLC 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 South32 with a short position of Glencore PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and Glencore PLC.

Diversification Opportunities for South32 and Glencore PLC

0.39

Correlation Coefficient

South32  Glencore PLC

Weak diversification

The 3 months correlation between South32 and Glencore is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding South32 and Glencore PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Glencore PLC and South32 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 South32 are associated (or correlated) with Glencore PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Glencore PLC has no effect on the direction of South32 i.e., South32 and Glencore PLC go up and down completely randomly.

Pair Corralation between South32 and Glencore PLC

Assuming the 90 days trading horizon South32 is expected to generate 1.22 times more return on investment than Glencore PLC. However, South32 is 1.22 times more volatile than Glencore PLC. It trades about 0.15 of its potential returns per unit of risk. Glencore PLC is currently generating about -0.03 per unit of risk. If you would invest  360,500  in South32 on September 3, 2024 and sell it today you would earn a total of  74,000  from holding South32 or generate 20.53% return on investment over 90 days.

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

South32  vs.  Glencore PLC

South32

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in South32 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, South32 exhibited solid returns over the last few months and may actually be approaching a breakup point.

Glencore PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Glencore PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Glencore PLC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with South32 and Glencore PLC

The main advantage of trading using opposite South32 and Glencore PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 position performs unexpectedly, Glencore PLC 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 Glencore PLC will offset losses from the drop in Glencore PLC's long position.

The idea behind South32 and Glencore PLC 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.