Correlation Between Caledonia Mining and Versarien PLC

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

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

Diversification Opportunities for Caledonia Mining and Versarien PLC

0.09

Correlation Coefficient

Caledonia Mining  Versarien PLC

Significant diversification

The 3 months correlation between Caledonia and Versarien is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Mining and Versarien PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Versarien 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 Versarien PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Versarien PLC has no effect on the direction of Caledonia Mining i.e., Caledonia Mining and Versarien PLC go up and down completely randomly.

Pair Corralation between Caledonia Mining and Versarien PLC

Assuming the 90 days trading horizon Caledonia Mining is expected to generate 0.35 times more return on investment than Versarien PLC. However, Caledonia Mining is 2.82 times less risky than Versarien PLC. It trades about -0.07 of its potential returns per unit of risk. Versarien PLC is currently generating about -0.08 per unit of risk. If you would invest  96,450  in Caledonia Mining on September 12, 2024 and sell it today you would lose (11,950) from holding Caledonia Mining or give up 12.39% of portfolio value over 90 days.

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

Caledonia Mining  vs.  Versarien 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.

Versarien PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Versarien PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Caledonia Mining and Versarien PLC

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

The idea behind Caledonia Mining and Versarien 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.

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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.