Correlation Between DRDGOLD Limited and Caledonia Mining

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

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

Diversification Opportunities for DRDGOLD Limited and Caledonia Mining

0.6

Correlation Coefficient

DRDGOLD Limited  Caledonia Mining

Poor diversification

The 3 months correlation between DRDGOLD and Caledonia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding DRDGOLD Limited ADR and Caledonia Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Mining and DRDGOLD Limited 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 DRDGOLD Limited ADR 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 DRDGOLD Limited i.e., DRDGOLD Limited and Caledonia Mining go up and down completely randomly.

Pair Corralation between DRDGOLD Limited and Caledonia Mining

Considering the 90-day investment horizon DRDGOLD Limited ADR is expected to generate 1.08 times more return on investment than Caledonia Mining. However, DRDGOLD Limited is 1.08 times more volatile than Caledonia Mining. It trades about 0.12 of its potential returns per unit of risk. Caledonia Mining is currently generating about -0.07 per unit of risk. If you would invest  794.00  in DRDGOLD Limited ADR on September 3, 2024 and sell it today you would earn a total of  180.00  from holding DRDGOLD Limited ADR or generate 22.67% return on investment over 90 days.

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

DRDGOLD Limited ADR  vs.  Caledonia Mining

DRDGOLD Limited ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DRDGOLD Limited ADR are ranked lower than 9 (%) 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.

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.

Pair Trading with DRDGOLD Limited and Caledonia Mining

The main advantage of trading using opposite DRDGOLD Limited and Caledonia Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DRDGOLD Limited 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 DRDGOLD Limited ADR 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.