Correlation Between Compania and Austral Gold

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

By analyzing existing cross correlation between Compania de Minas and Austral Gold Limited, you can compare the effects of market volatilities on Compania and Austral Gold 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 Compania with a short position of Austral Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and Austral Gold.

Diversification Opportunities for Compania and Austral Gold

0.37

Correlation Coefficient

Compania  Austral Gold

Weak diversification

The 3 months correlation between Compania and Austral is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Minas and Austral Gold Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Austral Gold Limited and Compania 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 Compania de Minas are associated (or correlated) with Austral Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Austral Gold Limited has no effect on the direction of Compania i.e., Compania and Austral Gold go up and down completely randomly.

Pair Corralation between Compania and Austral Gold

Considering the 90-day investment horizon Compania is expected to generate 43.36 times less return on investment than Austral Gold. But when comparing it to its historical volatility, Compania de Minas is 13.78 times less risky than Austral Gold. It trades about 0.07 of its potential returns per unit of risk. Austral Gold Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  0.98  in Austral Gold Limited on September 22, 2024 and sell it today you would earn a total of  1.34  from holding Austral Gold Limited or generate 136.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Compania de Minas  vs.  Austral Gold Limited

Compania de Minas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compania de Minas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Compania is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Austral Gold Limited

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Austral Gold Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Austral Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compania and Austral Gold

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

The idea behind Compania de Minas and Austral Gold 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.