Correlation Between Fortescue Metals and Anglo American
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals and Anglo American 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 Fortescue Metals and Anglo American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortescue Metals Group and Anglo American plc, you can compare the effects of market volatilities on Fortescue Metals and Anglo American 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 Fortescue Metals with a short position of Anglo American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Anglo American.
Diversification Opportunities for Fortescue Metals and Anglo American
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fortescue and Anglo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Anglo American plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American plc and Fortescue Metals 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 Fortescue Metals Group are associated (or correlated) with Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American plc has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Anglo American go up and down completely randomly.
Pair Corralation between Fortescue Metals and Anglo American
Assuming the 90 days horizon Fortescue Metals is expected to generate 7.92 times less return on investment than Anglo American. But when comparing it to its historical volatility, Fortescue Metals Group is 1.06 times less risky than Anglo American. It trades about 0.0 of its potential returns per unit of risk. Anglo American plc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,895 in Anglo American plc on August 29, 2024 and sell it today you would earn a total of 105.00 from holding Anglo American plc or generate 3.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.44% |
| Values | Daily Returns |
Fortescue Metals Group vs. Anglo American plc
Performance |
| Timeline |
| Fortescue Metals |
| Anglo American plc |
Fortescue Metals and Anglo American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and Anglo American
The main advantage of trading using opposite Fortescue Metals and Anglo American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals position performs unexpectedly, Anglo American 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 Anglo American will offset losses from the drop in Anglo American's long position.| Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Qubec Nickel Corp | Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Hannan Metals |
| Anglo American vs. Glencore PLC ADR | Anglo American vs. Fortescue Metals Group | Anglo American vs. South32 Limited | Anglo American vs. South32 ADR |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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