Correlation Between Caledonia Mining and DRDGOLD Limited

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

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

Diversification Opportunities for Caledonia Mining and DRDGOLD Limited

0.52

Correlation Coefficient

Caledonia Mining  DRDGOLD Limited

Very weak diversification

The 3 months correlation between Caledonia and DRDGOLD is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Mining and DRDGOLD Limited ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRDGOLD Limited ADR 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 DRDGOLD Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRDGOLD Limited ADR has no effect on the direction of Caledonia Mining i.e., Caledonia Mining and DRDGOLD Limited go up and down completely randomly.

Pair Corralation between Caledonia Mining and DRDGOLD Limited

Given the investment horizon of 90 days Caledonia Mining is expected to under-perform the DRDGOLD Limited. But the stock apears to be less risky and, when comparing its historical volatility, Caledonia Mining is 1.43 times less risky than DRDGOLD Limited. The stock trades about -0.01 of its potential returns per unit of risk. The DRDGOLD Limited ADR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  945.00  in DRDGOLD Limited ADR on December 1, 2024 and sell it today you would earn a total of  156.00  from holding DRDGOLD Limited ADR or generate 16.51% return on investment over 90 days.

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

Caledonia Mining  vs.  DRDGOLD Limited ADR

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. Despite quite persistent fundamental indicators, Caledonia Mining is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

DRDGOLD Limited ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DRDGOLD Limited ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, DRDGOLD Limited exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caledonia Mining and DRDGOLD Limited

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

The idea behind Caledonia Mining and DRDGOLD Limited ADR 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.