Correlation Between Southern Copper and Freeport McMoRan
Can any of the company-specific risk be diversified away by investing in both Southern Copper and Freeport McMoRan 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 Southern Copper and Freeport McMoRan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Copper and Freeport McMoRan, you can compare the effects of market volatilities on Southern Copper and Freeport McMoRan 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 Southern Copper with a short position of Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Copper and Freeport McMoRan.
Diversification Opportunities for Southern Copper and Freeport McMoRan
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southern and Freeport is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Southern Copper and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan and Southern Copper 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 Southern Copper are associated (or correlated) with Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of Southern Copper i.e., Southern Copper and Freeport McMoRan go up and down completely randomly.
Pair Corralation between Southern Copper and Freeport McMoRan
Assuming the 90 days trading horizon Southern Copper is expected to generate 1.08 times more return on investment than Freeport McMoRan. However, Southern Copper is 1.08 times more volatile than Freeport McMoRan. It trades about 0.22 of its potential returns per unit of risk. Freeport McMoRan is currently generating about 0.21 per unit of risk. If you would invest 139,600 in Southern Copper on January 20, 2024 and sell it today you would earn a total of 47,401 from holding Southern Copper or generate 33.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Copper vs. Freeport McMoRan
Performance |
| Timeline |
| Southern Copper |
| Freeport McMoRan |
Southern Copper and Freeport McMoRan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern Copper and Freeport McMoRan
The main advantage of trading using opposite Southern Copper and Freeport McMoRan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Copper position performs unexpectedly, Freeport McMoRan 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 Freeport McMoRan will offset losses from the drop in Freeport McMoRan's long position.| Southern Copper vs. Air Transport Services | Southern Copper vs. United Airlines Holdings | Southern Copper vs. New Oriental Education | Southern Copper vs. Micron Technology |
| Freeport McMoRan vs. FibraHotel | Freeport McMoRan vs. Grupo Sports World | Freeport McMoRan vs. McEwen Mining | Freeport McMoRan vs. Costco Wholesale |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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