Correlation Between Glencore PLC and African Rainbow
Can any of the company-specific risk be diversified away by investing in both Glencore PLC and African Rainbow 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 Glencore PLC and African Rainbow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Glencore PLC and African Rainbow Minerals, you can compare the effects of market volatilities on Glencore PLC and African Rainbow 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 Glencore PLC with a short position of African Rainbow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Glencore PLC and African Rainbow.
Diversification Opportunities for Glencore PLC and African Rainbow
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Glencore and African is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Glencore PLC and African Rainbow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Minerals and Glencore PLC 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 Glencore PLC are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Minerals has no effect on the direction of Glencore PLC i.e., Glencore PLC and African Rainbow go up and down completely randomly.
Pair Corralation between Glencore PLC and African Rainbow
Assuming the 90 days trading horizon Glencore PLC is expected to generate 0.98 times more return on investment than African Rainbow. However, Glencore PLC is 1.02 times less risky than African Rainbow. It trades about -0.19 of its potential returns per unit of risk. African Rainbow Minerals is currently generating about -0.3 per unit of risk. If you would invest 926,100 in Glencore PLC on September 2, 2024 and sell it today you would lose (64,500) from holding Glencore PLC or give up 6.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Glencore PLC vs. African Rainbow Minerals
Performance |
| Timeline |
| Glencore PLC |
| African Rainbow Minerals |
Glencore PLC and African Rainbow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Glencore PLC and African Rainbow
The main advantage of trading using opposite Glencore PLC and African Rainbow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Glencore PLC position performs unexpectedly, African Rainbow 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 African Rainbow will offset losses from the drop in African Rainbow's long position.The idea behind Glencore PLC and African Rainbow Minerals 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.| African Rainbow vs. Blue Label Telecoms | African Rainbow vs. Bytes Technology | African Rainbow vs. City Lodge Hotels | African Rainbow vs. CA Sales Holdings |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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