Correlation Between Morgan Advanced and Caledonia Mining

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

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

Diversification Opportunities for Morgan Advanced and Caledonia Mining

-0.44

Correlation Coefficient

Morgan Advanced  Caledonia Mining

Very good diversification

The 3 months correlation between Morgan and Caledonia is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Advanced Materials and Caledonia Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Mining and Morgan Advanced 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 Morgan Advanced Materials 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 Morgan Advanced i.e., Morgan Advanced and Caledonia Mining go up and down completely randomly.

Pair Corralation between Morgan Advanced and Caledonia Mining

Assuming the 90 days trading horizon Morgan Advanced Materials is expected to generate 0.55 times more return on investment than Caledonia Mining. However, Morgan Advanced Materials is 1.82 times less risky than Caledonia Mining. It trades about -0.04 of its potential returns per unit of risk. Caledonia Mining is currently generating about -0.07 per unit of risk. If you would invest  27,952  in Morgan Advanced Materials on September 12, 2024 and sell it today you would lose (1,152) from holding Morgan Advanced Materials or give up 4.12% of portfolio value over 90 days.

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

Morgan Advanced Materials  vs.  Caledonia Mining

Morgan Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morgan Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Morgan Advanced is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 Morgan Advanced and Caledonia Mining

The main advantage of trading using opposite Morgan Advanced and Caledonia Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morgan Advanced 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 Morgan Advanced Materials 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.