Correlation Between Sibanye Gold and Franco Nevada

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

By analyzing existing cross correlation between Sibanye Gold Ltd and Franco Nevada, you can compare the effects of market volatilities on Sibanye Gold 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 Sibanye Gold with a short position of Franco Nevada. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sibanye Gold and Franco Nevada.

Diversification Opportunities for Sibanye Gold and Franco Nevada

0.74

Correlation Coefficient

Sibanye Gold  Franco Nevada

Poor diversification

The 3 months correlation between Sibanye and Franco is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sibanye Gold Ltd and Franco Nevada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franco Nevada and Sibanye Gold 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 Sibanye Gold Ltd 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 Sibanye Gold i.e., Sibanye Gold and Franco Nevada go up and down completely randomly.

Pair Corralation between Sibanye Gold and Franco Nevada

Given the investment horizon of 90 days Sibanye Gold Ltd is expected to generate 2.16 times more return on investment than Franco Nevada. However, Sibanye Gold is 2.16 times more volatile than Franco Nevada. It trades about 0.17 of its potential returns per unit of risk. Franco Nevada is currently generating about 0.33 per unit of risk. If you would invest  324.00  in Sibanye Gold Ltd on December 29, 2024 and sell it today you would earn a total of  114.00  from holding Sibanye Gold Ltd or generate 35.19% return on investment over 90 days.

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

Sibanye Gold Ltd  vs.  Franco Nevada

Sibanye Gold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sibanye Gold Ltd are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Sibanye Gold showed 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 26 (%) 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 Sibanye Gold and Franco Nevada

The main advantage of trading using opposite Sibanye Gold and Franco Nevada positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sibanye Gold 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 Sibanye Gold Ltd 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.