Correlation Between Caledonia Mining and Tanzanian Royalty

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

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

Diversification Opportunities for Caledonia Mining and Tanzanian Royalty

0.74

Correlation Coefficient

Caledonia Mining  Tanzanian Royalty

Poor diversification

The 3 months correlation between Caledonia and Tanzanian is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Mining and Tanzanian Royalty Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tanzanian Royalty 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 Tanzanian Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tanzanian Royalty has no effect on the direction of Caledonia Mining i.e., Caledonia Mining and Tanzanian Royalty go up and down completely randomly.

Pair Corralation between Caledonia Mining and Tanzanian Royalty

Given the investment horizon of 90 days Caledonia Mining is expected to under-perform the Tanzanian Royalty. In addition to that, Caledonia Mining is 1.27 times more volatile than Tanzanian Royalty Exploration. It trades about -0.07 of its total potential returns per unit of risk. Tanzanian Royalty Exploration is currently generating about -0.02 per unit of volatility. If you would invest  38.00  in Tanzanian Royalty Exploration on September 3, 2024 and sell it today you would lose (2.00) from holding Tanzanian Royalty Exploration or give up 5.26% of portfolio value over 90 days.

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

Caledonia Mining  vs.  Tanzanian Royalty 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 unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Tanzanian Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tanzanian Royalty Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Tanzanian Royalty is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caledonia Mining and Tanzanian Royalty

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

The idea behind Caledonia Mining and Tanzanian Royalty 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.

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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.