Correlation Between Caledonia Mining and London Security

Can any of the company-specific risk be diversified away by investing in both Caledonia Mining and London Security 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 Caledonia Mining and London Security into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caledonia Mining and London Security Plc, you can compare the effects of market volatilities on Caledonia Mining and London Security 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 Caledonia Mining with a short position of London Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caledonia Mining and London Security.

Diversification Opportunities for Caledonia Mining and London Security

0.12

Correlation Coefficient

Caledonia Mining  London Security

Average diversification

The 3 months correlation between Caledonia and London is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Mining and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security Plc and Caledonia Mining 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 Caledonia Mining are associated (or correlated) with London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of Caledonia Mining i.e., Caledonia Mining and London Security go up and down completely randomly.

Pair Corralation between Caledonia Mining and London Security

Assuming the 90 days trading horizon Caledonia Mining is expected to generate 1.96 times more return on investment than London Security. However, Caledonia Mining is 1.96 times more volatile than London Security Plc. It trades about 0.21 of its potential returns per unit of risk. London Security Plc is currently generating about 0.0 per unit of risk. If you would invest  77,250  in Caledonia Mining on December 2, 2024 and sell it today you would earn a total of  4,250  from holding Caledonia Mining or generate 5.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Caledonia Mining  vs.  London Security Plc

Caledonia Mining

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caledonia Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caledonia Mining is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

London Security Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Security Plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, London Security may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Caledonia Mining and London Security

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

The idea behind Caledonia Mining and London Security 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.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.