Correlation Between Talon Energy and Kumba Iron

Can any of the company-specific risk be diversified away by investing in both Talon Energy and Kumba Iron 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 Talon Energy and Kumba Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Talon Energy and Kumba Iron Ore, you can compare the effects of market volatilities on Talon Energy and Kumba Iron 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 Talon Energy with a short position of Kumba Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Talon Energy and Kumba Iron.

Diversification Opportunities for Talon Energy and Kumba Iron

-0.32

Correlation Coefficient

Talon Energy  Kumba Iron

Very good diversification

The 3 months correlation between Talon and Kumba is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Talon Energy and Kumba Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumba Iron Ore and Talon Energy 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 Talon Energy are associated (or correlated) with Kumba Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumba Iron Ore has no effect on the direction of Talon Energy i.e., Talon Energy and Kumba Iron go up and down completely randomly.

Pair Corralation between Talon Energy and Kumba Iron

If you would invest  874.00  in Kumba Iron Ore on March 2, 2024 and sell it today you would earn a total of  18.00  from holding Kumba Iron Ore or generate 2.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.61%
Values	Daily Returns

Talon Energy  vs.  Kumba Iron Ore

Talon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Talon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Talon Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Kumba Iron Ore

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kumba Iron Ore are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Kumba Iron may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Talon Energy and Kumba Iron

The main advantage of trading using opposite Talon Energy and Kumba Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Talon Energy position performs unexpectedly, Kumba Iron 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 Kumba Iron will offset losses from the drop in Kumba Iron's long position.

The idea behind Talon Energy and Kumba Iron Ore 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.