Correlation Between Cleveland Cliffs and Caledonia Mining
Can any of the company-specific risk be diversified away by investing in both Cleveland Cliffs 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 Cleveland Cliffs and Caledonia Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cleveland Cliffs and Caledonia Mining, you can compare the effects of market volatilities on Cleveland Cliffs 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 Cleveland Cliffs with a short position of Caledonia Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cleveland Cliffs and Caledonia Mining.
Diversification Opportunities for Cleveland Cliffs and Caledonia Mining
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cleveland and Caledonia is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cleveland Cliffs and Caledonia Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Mining and Cleveland Cliffs 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 Cleveland Cliffs 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 Cleveland Cliffs i.e., Cleveland Cliffs and Caledonia Mining go up and down completely randomly.
Pair Corralation between Cleveland Cliffs and Caledonia Mining
Considering the 90-day investment horizon Cleveland Cliffs is expected to generate 1.54 times more return on investment than Caledonia Mining. However, Cleveland Cliffs is 1.54 times more volatile than Caledonia Mining. It trades about -0.07 of its potential returns per unit of risk. Caledonia Mining is currently generating about -0.48 per unit of risk. If you would invest 1,367 in Cleveland Cliffs on August 29, 2024 and sell it today you would lose (162.00) from holding Cleveland Cliffs or give up 11.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cleveland Cliffs vs. Caledonia Mining
Performance |
| Timeline |
| Cleveland Cliffs |
| Caledonia Mining |
Cleveland Cliffs and Caledonia Mining Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cleveland Cliffs and Caledonia Mining
The main advantage of trading using opposite Cleveland Cliffs and Caledonia Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cleveland Cliffs 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 Cleveland Cliffs 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.| Caledonia Mining vs. DRDGOLD Limited ADR | Caledonia Mining vs. Galiano Gold | Caledonia Mining vs. Mastech Holdings | Caledonia Mining vs. EMX Royalty Corp |
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.
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