Correlation Between Northern Star and DRDGOLD Limited

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

By analyzing existing cross correlation between Northern Star Resources and DRDGOLD Limited ADR, you can compare the effects of market volatilities on Northern Star 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 Northern Star with a short position of DRDGOLD Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Star and DRDGOLD Limited.

Diversification Opportunities for Northern Star and DRDGOLD Limited

0.7

Correlation Coefficient

Northern Star  DRDGOLD Limited

Poor diversification

The 3 months correlation between Northern and DRDGOLD is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources 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 Northern Star 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 Northern Star Resources 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 Northern Star i.e., Northern Star and DRDGOLD Limited go up and down completely randomly.

Pair Corralation between Northern Star and DRDGOLD Limited

Assuming the 90 days horizon Northern Star is expected to generate 2.56 times less return on investment than DRDGOLD Limited. In addition to that, Northern Star is 1.22 times more volatile than DRDGOLD Limited ADR. It trades about 0.03 of its total potential returns per unit of risk. DRDGOLD Limited ADR is currently generating about 0.1 per unit of volatility. If you would invest  974.00  in DRDGOLD Limited ADR on November 29, 2024 and sell it today you would earn a total of  163.00  from holding DRDGOLD Limited ADR or generate 16.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.22%
Values	Daily Returns

Northern Star Resources  vs.  DRDGOLD Limited ADR

Northern Star Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Star may actually be approaching a critical reversion point that can send shares even higher in March 2025.

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 Northern Star and DRDGOLD Limited

The main advantage of trading using opposite Northern Star and DRDGOLD Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Star 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 Northern Star Resources 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.