Correlation Between Fortescue Metals and South32 ADR
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals and South32 ADR 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 ADR 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 ADR, you can compare the effects of market volatilities on Fortescue Metals and South32 ADR 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 ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and South32 ADR.
Diversification Opportunities for Fortescue Metals and South32 ADR
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Fortescue and South32 is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and South32 ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 ADR 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 ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 ADR has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and South32 ADR go up and down completely randomly.
Pair Corralation between Fortescue Metals and South32 ADR
Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the South32 ADR. But the otc stock apears to be less risky and, when comparing its historical volatility, Fortescue Metals Group is 1.12 times less risky than South32 ADR. The otc stock trades about -0.1 of its potential returns per unit of risk. The South32 ADR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,220 in South32 ADR on August 26, 2024 and sell it today you would earn a total of 24.00 from holding South32 ADR or generate 1.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. South32 ADR
Performance |
| Timeline |
| Fortescue Metals |
| South32 ADR |
Fortescue Metals and South32 ADR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and South32 ADR
The main advantage of trading using opposite Fortescue Metals and South32 ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals position performs unexpectedly, South32 ADR 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 ADR will offset losses from the drop in South32 ADR's long position.| Fortescue Metals vs. Norra Metals Corp | Fortescue Metals vs. ZincX Resources Corp | Fortescue Metals vs. Nuinsco Resources Limited | Fortescue Metals vs. South Star Battery |
| South32 ADR vs. Liontown Resources Limited | South32 ADR vs. IGO Limited | South32 ADR vs. Anglo American PLC | South32 ADR vs. IGO Limited |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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