Correlation Between Caledonia Mining and Franco Nevada

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

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

Diversification Opportunities for Caledonia Mining and Franco Nevada

0.93

Correlation Coefficient

Caledonia Mining  Franco Nevada

Almost no diversification

The 3 months correlation between Caledonia and Franco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Mining and Franco Nevada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franco Nevada 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 Franco Nevada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franco Nevada has no effect on the direction of Caledonia Mining i.e., Caledonia Mining and Franco Nevada go up and down completely randomly.

Pair Corralation between Caledonia Mining and Franco Nevada

Given the investment horizon of 90 days Caledonia Mining is expected to generate 1.26 times less return on investment than Franco Nevada. In addition to that, Caledonia Mining is 1.48 times more volatile than Franco Nevada. It trades about 0.17 of its total potential returns per unit of risk. Franco Nevada is currently generating about 0.32 per unit of volatility. If you would invest  11,666  in Franco Nevada on December 29, 2024 and sell it today you would earn a total of  3,881  from holding Franco Nevada or generate 33.27% 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.  Franco Nevada

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.

Franco Nevada

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Franco Nevada are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Franco Nevada showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caledonia Mining and Franco Nevada

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

The idea behind Caledonia Mining and Franco Nevada 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.