Correlation Between Red Pine and DRDGOLD Limited

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

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

Diversification Opportunities for Red Pine and DRDGOLD Limited

0.64

Correlation Coefficient

Red Pine  DRDGOLD Limited

Poor diversification

The 3 months correlation between Red and DRDGOLD is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Red Pine Exploration and DRDGOLD Limited ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRDGOLD Limited ADR and Red Pine 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 Red Pine Exploration are associated (or correlated) with DRDGOLD Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRDGOLD Limited ADR has no effect on the direction of Red Pine i.e., Red Pine and DRDGOLD Limited go up and down completely randomly.

Pair Corralation between Red Pine and DRDGOLD Limited

Assuming the 90 days horizon Red Pine is expected to generate 1.25 times less return on investment than DRDGOLD Limited. In addition to that, Red Pine is 1.48 times more volatile than DRDGOLD Limited ADR. It trades about 0.06 of its total potential returns per unit of risk. DRDGOLD Limited ADR is currently generating about 0.11 per unit of volatility. If you would invest  782.00  in DRDGOLD Limited ADR on September 4, 2024 and sell it today you would earn a total of  163.00  from holding DRDGOLD Limited ADR or generate 20.84% return on investment over 90 days.

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

Red Pine Exploration  vs.  DRDGOLD Limited ADR

Red Pine Exploration

Risk-Adjusted Performance

4 of 100

Insignificant

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

DRDGOLD Limited ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DRDGOLD Limited ADR are ranked lower than 8 (%) 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.

Pair Trading with Red Pine and DRDGOLD Limited

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

The idea behind Red Pine Exploration and DRDGOLD Limited ADR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.