Correlation Between Centerra Gold and NovaGold Resources

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

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

Diversification Opportunities for Centerra Gold and NovaGold Resources

-0.36

Correlation Coefficient

Centerra Gold  NovaGold Resources

Very good diversification

The 3 months correlation between Centerra and NovaGold is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Centerra Gold and NovaGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaGold Resources and Centerra Gold 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 Centerra Gold are associated (or correlated) with NovaGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NovaGold Resources has no effect on the direction of Centerra Gold i.e., Centerra Gold and NovaGold Resources go up and down completely randomly.

Pair Corralation between Centerra Gold and NovaGold Resources

Assuming the 90 days horizon Centerra Gold is expected to generate 0.76 times more return on investment than NovaGold Resources. However, Centerra Gold is 1.32 times less risky than NovaGold Resources. It trades about -0.01 of its potential returns per unit of risk. NovaGold Resources is currently generating about -0.09 per unit of risk. If you would invest  845.00  in Centerra Gold on November 29, 2024 and sell it today you would lose (25.00) from holding Centerra Gold or give up 2.96% of portfolio value over 90 days.

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

Centerra Gold  vs.  NovaGold Resources

Centerra Gold

Risk-Adjusted Performance

Weak

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

NovaGold Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Centerra Gold and NovaGold Resources

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

The idea behind Centerra Gold and NovaGold Resources 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.