Correlation Between Pan African and DRDGOLD
Can any of the company-specific risk be diversified away by investing in both Pan African and DRDGOLD 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 Pan African and DRDGOLD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pan African Resources and DRDGOLD Limited, you can compare the effects of market volatilities on Pan African and DRDGOLD 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 Pan African with a short position of DRDGOLD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pan African and DRDGOLD.
Diversification Opportunities for Pan African and DRDGOLD
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Pan and DRDGOLD is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Pan African Resources and DRDGOLD Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRDGOLD Limited and Pan African 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 Pan African Resources are associated (or correlated) with DRDGOLD. 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 has no effect on the direction of Pan African i.e., Pan African and DRDGOLD go up and down completely randomly.
Pair Corralation between Pan African and DRDGOLD
Assuming the 90 days trading horizon Pan African Resources is expected to generate 0.97 times more return on investment than DRDGOLD. However, Pan African Resources is 1.03 times less risky than DRDGOLD. It trades about 0.1 of its potential returns per unit of risk. DRDGOLD Limited is currently generating about 0.07 per unit of risk. If you would invest 72,700 in Pan African Resources on August 31, 2024 and sell it today you would earn a total of 6,800 from holding Pan African Resources or generate 9.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.78% |
| Values | Daily Returns |
Pan African Resources vs. DRDGOLD Limited
Performance |
| Timeline |
| Pan African Resources |
| DRDGOLD Limited |
Pan African and DRDGOLD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pan African and DRDGOLD
The main advantage of trading using opposite Pan African and DRDGOLD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pan African position performs unexpectedly, DRDGOLD 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 will offset losses from the drop in DRDGOLD's long position.The idea behind Pan African Resources and DRDGOLD Limited 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.| DRDGOLD vs. Gold Fields | DRDGOLD vs. Sibanye Stillwater | DRDGOLD vs. Harmony Gold Mining | DRDGOLD vs. Pan African Resources |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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