Correlation Between Ferrexpo PLC and Caledonia Mining

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

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

Diversification Opportunities for Ferrexpo PLC and Caledonia Mining

-0.33

Correlation Coefficient

Ferrexpo PLC  Caledonia Mining

Very good diversification

The 3 months correlation between Ferrexpo and Caledonia is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ferrexpo PLC and Caledonia Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Mining and Ferrexpo PLC 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 Ferrexpo PLC 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 Ferrexpo PLC i.e., Ferrexpo PLC and Caledonia Mining go up and down completely randomly.

Pair Corralation between Ferrexpo PLC and Caledonia Mining

Assuming the 90 days trading horizon Ferrexpo PLC is expected to generate 2.56 times more return on investment than Caledonia Mining. However, Ferrexpo PLC is 2.56 times more volatile than Caledonia Mining. It trades about 0.24 of its potential returns per unit of risk. Caledonia Mining is currently generating about -0.06 per unit of risk. If you would invest  4,220  in Ferrexpo PLC on September 5, 2024 and sell it today you would earn a total of  5,560  from holding Ferrexpo PLC or generate 131.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Ferrexpo PLC  vs.  Caledonia Mining

Ferrexpo PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrexpo PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Ferrexpo PLC unveiled 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. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Ferrexpo PLC and Caledonia Mining

The main advantage of trading using opposite Ferrexpo PLC and Caledonia Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ferrexpo PLC 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 Ferrexpo PLC 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.