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

0.94

Correlation Coefficient

Caledonia Mining  DRDGOLD Limited

Almost no diversification

The 3 months correlation between Caledonia and DRDGOLD is 0.94. 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 generate 2.51 times less return on investment than DRDGOLD Limited. But when comparing it to its historical volatility, Caledonia Mining is 1.58 times less risky than DRDGOLD Limited. It trades about 0.17 of its potential returns per unit of risk. DRDGOLD Limited ADR is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  858.00  in DRDGOLD Limited ADR on December 29, 2024 and sell it today you would earn a total of  625.00  from holding DRDGOLD Limited ADR or generate 72.84% return on investment over 90 days.

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

Caledonia Mining  vs.  DRDGOLD Limited ADR

Caledonia Mining

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Mining are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental indicators, Caledonia Mining disclosed solid returns over the last few months and may actually be approaching a breakup point.

DRDGOLD Limited ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DRDGOLD Limited ADR are ranked lower than 21 (%) 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.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.