Correlation Between Fortescue Metals and South32
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals and South32 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 South32 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 South32 Limited, you can compare the effects of market volatilities on Fortescue Metals and South32 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 South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and South32.
Diversification Opportunities for Fortescue Metals and South32
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Fortescue and South32 is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and South32 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 Limited 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 South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 Limited has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and South32 go up and down completely randomly.
Pair Corralation between Fortescue Metals and South32
Assuming the 90 days horizon Fortescue Metals Group is expected to generate 0.78 times more return on investment than South32. However, Fortescue Metals Group is 1.28 times less risky than South32. It trades about 0.12 of its potential returns per unit of risk. South32 Limited is currently generating about -0.06 per unit of risk. If you would invest 2,316 in Fortescue Metals Group on November 2, 2024 and sell it today you would earn a total of 93.00 from holding Fortescue Metals Group or generate 4.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. South32 Limited
Performance |
| Timeline |
| Fortescue Metals |
| South32 Limited |
Fortescue Metals and South32 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and South32
The main advantage of trading using opposite Fortescue Metals and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.| Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Qubec Nickel Corp | Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Hannan Metals |
| South32 vs. Hannan Metals | South32 vs. Atco Mining | South32 vs. Leading Edge Materials | South32 vs. Arianne Phosphate |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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