Correlation Between Compania and NevGold Corp

Can any of the company-specific risk be diversified away by investing in both Compania and NevGold Corp 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 NevGold Corp 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 NevGold Corp, you can compare the effects of market volatilities on Compania and NevGold Corp 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 NevGold Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and NevGold Corp.

Diversification Opportunities for Compania and NevGold Corp

0.44

Correlation Coefficient

Compania  NevGold Corp

Very weak diversification

The 3 months correlation between Compania and NevGold is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Minas and NevGold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NevGold Corp 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 NevGold Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NevGold Corp has no effect on the direction of Compania i.e., Compania and NevGold Corp go up and down completely randomly.

Pair Corralation between Compania and NevGold Corp

Considering the 90-day investment horizon Compania is expected to generate 1.95 times less return on investment than NevGold Corp. But when comparing it to its historical volatility, Compania de Minas is 3.68 times less risky than NevGold Corp. It trades about 0.17 of its potential returns per unit of risk. NevGold Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  15.00  in NevGold Corp on December 20, 2024 and sell it today you would earn a total of  4.00  from holding NevGold Corp or generate 26.67% return on investment over 90 days.

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

Compania de Minas  vs.  NevGold Corp

Compania de Minas

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Minas are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Compania displayed solid returns over the last few months and may actually be approaching a breakup point.

NevGold Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NevGold Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, NevGold Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compania and NevGold Corp

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

The idea behind Compania de Minas and NevGold Corp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.