Correlation Between CMC Metals and GMV Minerals

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

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

Diversification Opportunities for CMC Metals and GMV Minerals

0.07

Correlation Coefficient

CMC Metals  GMV Minerals

Significant diversification

The 3 months correlation between CMC and GMV is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and GMV Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMV Minerals and CMC Metals 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 CMC Metals are associated (or correlated) with GMV Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMV Minerals has no effect on the direction of CMC Metals i.e., CMC Metals and GMV Minerals go up and down completely randomly.

Pair Corralation between CMC Metals and GMV Minerals

Assuming the 90 days horizon CMC Metals is expected to generate 2.58 times more return on investment than GMV Minerals. However, CMC Metals is 2.58 times more volatile than GMV Minerals. It trades about 0.04 of its potential returns per unit of risk. GMV Minerals is currently generating about 0.07 per unit of risk. If you would invest  3.00  in CMC Metals on December 3, 2024 and sell it today you would lose (1.00) from holding CMC Metals or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

CMC Metals  vs.  GMV Minerals

CMC Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CMC Metals showed solid returns over the last few months and may actually be approaching a breakup point.

GMV Minerals

Risk-Adjusted Performance

Very Weak

Over the last 90 days GMV Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, GMV Minerals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with CMC Metals and GMV Minerals

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

The idea behind CMC Metals and GMV Minerals 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.