Correlation Between Westward Gold and Caledonia Mining

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

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

Diversification Opportunities for Westward Gold and Caledonia Mining

0.34

Correlation Coefficient

Westward Gold  Caledonia Mining

Weak diversification

The 3 months correlation between Westward and Caledonia is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Westward Gold and Caledonia Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Mining and Westward 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 Westward Gold 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 Westward Gold i.e., Westward Gold and Caledonia Mining go up and down completely randomly.

Pair Corralation between Westward Gold and Caledonia Mining

Assuming the 90 days horizon Westward Gold is expected to generate 2.89 times more return on investment than Caledonia Mining. However, Westward Gold is 2.89 times more volatile than Caledonia Mining. It trades about 0.04 of its potential returns per unit of risk. Caledonia Mining is currently generating about -0.01 per unit of risk. If you would invest  5.36  in Westward Gold on December 1, 2024 and sell it today you would earn a total of  0.14  from holding Westward Gold or generate 2.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Westward Gold  vs.  Caledonia Mining

Westward Gold

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westward Gold are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Westward Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Caledonia Mining

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caledonia Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Caledonia Mining is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Westward Gold and Caledonia Mining

The main advantage of trading using opposite Westward Gold and Caledonia Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westward Gold 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 Westward Gold 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.