Correlation Between Caledonia Mining and Premier Foods

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

By analyzing existing cross correlation between Caledonia Mining and Premier Foods PLC, you can compare the effects of market volatilities on Caledonia Mining and Premier Foods 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 Premier Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caledonia Mining and Premier Foods.

Diversification Opportunities for Caledonia Mining and Premier Foods

0.35

Correlation Coefficient

Caledonia Mining  Premier Foods

Weak diversification

The 3 months correlation between Caledonia and Premier is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Mining and Premier Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods 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 Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods PLC has no effect on the direction of Caledonia Mining i.e., Caledonia Mining and Premier Foods go up and down completely randomly.

Pair Corralation between Caledonia Mining and Premier Foods

Assuming the 90 days trading horizon Caledonia Mining is expected to under-perform the Premier Foods. In addition to that, Caledonia Mining is 2.02 times more volatile than Premier Foods PLC. It trades about -0.07 of its total potential returns per unit of risk. Premier Foods PLC is currently generating about 0.12 per unit of volatility. If you would invest  17,940  in Premier Foods PLC on September 3, 2024 and sell it today you would earn a total of  1,620  from holding Premier Foods PLC or generate 9.03% return on investment over 90 days.

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

Caledonia Mining  vs.  Premier Foods PLC

Caledonia Mining

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Premier Foods PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Foods PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Premier Foods may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caledonia Mining and Premier Foods

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

The idea behind Caledonia Mining and Premier Foods 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.