Correlation Between Caledonia Mining and Fosterville South

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

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

Diversification Opportunities for Caledonia Mining and Fosterville South

0.5

Correlation Coefficient

Caledonia Mining  Fosterville South

Very weak diversification

The 3 months correlation between Caledonia and Fosterville is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Mining and Fosterville South Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fosterville South 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 Fosterville South. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fosterville South has no effect on the direction of Caledonia Mining i.e., Caledonia Mining and Fosterville South go up and down completely randomly.

Pair Corralation between Caledonia Mining and Fosterville South

Given the investment horizon of 90 days Caledonia Mining is expected to under-perform the Fosterville South. But the stock apears to be less risky and, when comparing its historical volatility, Caledonia Mining is 2.2 times less risky than Fosterville South. The stock trades about -0.18 of its potential returns per unit of risk. The Fosterville South Exploration is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  74.00  in Fosterville South Exploration on February 6, 2024 and sell it today you would earn a total of  1.00  from holding Fosterville South Exploration or generate 1.35% return on investment over 90 days.

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

Caledonia Mining  vs.  Fosterville South Exploration

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. 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.

Fosterville South

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fosterville South Exploration are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Fosterville South reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caledonia Mining and Fosterville South

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

The idea behind Caledonia Mining and Fosterville South Exploration 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.