Correlation Between CMC Metals and Goliath Resources

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

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

Diversification Opportunities for CMC Metals and Goliath Resources

0.66

Correlation Coefficient

CMC Metals  Goliath Resources

Poor diversification

The 3 months correlation between CMC and Goliath is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and Goliath Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goliath Resources 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 Goliath Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goliath Resources has no effect on the direction of CMC Metals i.e., CMC Metals and Goliath Resources go up and down completely randomly.

Pair Corralation between CMC Metals and Goliath Resources

Assuming the 90 days horizon CMC Metals is expected to generate 4.23 times more return on investment than Goliath Resources. However, CMC Metals is 4.23 times more volatile than Goliath Resources. It trades about 0.07 of its potential returns per unit of risk. Goliath Resources is currently generating about 0.03 per unit of risk. If you would invest  3.00  in CMC Metals on October 8, 2024 and sell it today you would earn a total of  0.00  from holding CMC Metals or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

CMC Metals  vs.  Goliath Resources

CMC Metals

Risk-Adjusted Performance

6 of 100

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.

Goliath Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goliath Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with CMC Metals and Goliath Resources

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

The idea behind CMC Metals and Goliath 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.