Correlation Between Fortescue Metals and Glencore PLC
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals 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 Fortescue Metals and Glencore PLC 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 Glencore PLC, you can compare the effects of market volatilities on Fortescue Metals 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 Fortescue Metals with a short position of Glencore PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Glencore PLC.
Diversification Opportunities for Fortescue Metals and Glencore PLC
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Fortescue and Glencore is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Glencore PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Glencore 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 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 Fortescue Metals i.e., Fortescue Metals and Glencore PLC go up and down completely randomly.
Pair Corralation between Fortescue Metals and Glencore PLC
Assuming the 90 days horizon Fortescue Metals Group is expected to generate 1.12 times more return on investment than Glencore PLC. However, Fortescue Metals is 1.12 times more volatile than Glencore PLC. It trades about -0.14 of its potential returns per unit of risk. Glencore PLC is currently generating about -0.18 per unit of risk. If you would invest 1,300 in Fortescue Metals Group on August 29, 2024 and sell it today you would lose (107.00) from holding Fortescue Metals Group or give up 8.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. Glencore PLC
Performance |
| Timeline |
| Fortescue Metals |
| Glencore PLC |
Fortescue Metals and Glencore PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and Glencore PLC
The main advantage of trading using opposite Fortescue Metals and Glencore PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals 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 Fortescue Metals Group 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.| Glencore PLC vs. Anglo American PLC | Glencore PLC vs. Teck Resources Ltd | Glencore PLC vs. BHP Group Limited | Glencore PLC vs. Vale SA 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 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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