Correlation Between South32 and East Africa
Can any of the company-specific risk be diversified away by investing in both South32 and East Africa 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 South32 and East Africa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between South32 Limited and East Africa Metals, you can compare the effects of market volatilities on South32 and East Africa 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 South32 with a short position of East Africa. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and East Africa.
Diversification Opportunities for South32 and East Africa
-0.85 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between South32 and East is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding South32 Limited and East Africa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Africa Metals and South32 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 South32 Limited are associated (or correlated) with East Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Africa Metals has no effect on the direction of South32 i.e., South32 and East Africa go up and down completely randomly.
Pair Corralation between South32 and East Africa
Assuming the 90 days horizon South32 Limited is expected to generate 1.11 times more return on investment than East Africa. However, South32 is 1.11 times more volatile than East Africa Metals. It trades about 0.09 of its potential returns per unit of risk. East Africa Metals is currently generating about -0.11 per unit of risk. If you would invest 195.00 in South32 Limited on September 2, 2024 and sell it today you would earn a total of 32.00 from holding South32 Limited or generate 16.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 96.92% |
| Values | Daily Returns |
South32 Limited vs. East Africa Metals
Performance |
| Timeline |
| South32 Limited |
| East Africa Metals |
South32 and East Africa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with South32 and East Africa
The main advantage of trading using opposite South32 and East Africa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 position performs unexpectedly, East Africa 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 East Africa will offset losses from the drop in East Africa's long position.The idea behind South32 Limited and East Africa Metals 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.| East Africa vs. Pasinex Resources Limited | East Africa vs. Commander Resources | East Africa vs. Forsys Metals Corp | East Africa vs. American CuMo Mining |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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