Correlation Between Fevertree Drinks and Caledonia Mining

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

By analyzing existing cross correlation between Fevertree Drinks Plc and Caledonia Mining, you can compare the effects of market volatilities on Fevertree Drinks and Caledonia Mining 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 Fevertree Drinks with a short position of Caledonia Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fevertree Drinks and Caledonia Mining.

Diversification Opportunities for Fevertree Drinks and Caledonia Mining

0.09

Correlation Coefficient

Fevertree Drinks  Caledonia Mining

Significant diversification

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

Pair Corralation between Fevertree Drinks and Caledonia Mining

Assuming the 90 days trading horizon Fevertree Drinks Plc is expected to under-perform the Caledonia Mining. But the stock apears to be less risky and, when comparing its historical volatility, Fevertree Drinks Plc is 1.07 times less risky than Caledonia Mining. The stock trades about -0.12 of its potential returns per unit of risk. The Caledonia Mining is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  95,466  in Caledonia Mining on September 3, 2024 and sell it today you would lose (10,966) from holding Caledonia Mining or give up 11.49% of portfolio value over 90 days.

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

Fevertree Drinks Plc  vs.  Caledonia Mining

Fevertree Drinks Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks 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 basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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.

Pair Trading with Fevertree Drinks and Caledonia Mining

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

The idea behind Fevertree Drinks Plc and Caledonia Mining 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.