Correlation Between CMC Metals and GoGold Resources

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

Diversification Opportunities for CMC Metals and GoGold Resources

-0.37

Correlation Coefficient

CMC Metals  GoGold Resources

Very good diversification

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

Pair Corralation between CMC Metals and GoGold Resources

Assuming the 90 days horizon CMC Metals is expected to generate 2.12 times less return on investment than GoGold Resources. In addition to that, CMC Metals is 4.44 times more volatile than GoGold Resources. It trades about 0.03 of its total potential returns per unit of risk. GoGold Resources is currently generating about 0.26 per unit of volatility. If you would invest  75.00  in GoGold Resources on December 28, 2024 and sell it today you would earn a total of  51.00  from holding GoGold Resources or generate 68.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.0%
Values	Daily Returns

CMC Metals  vs.  GoGold Resources

CMC Metals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CMC Metals reported solid returns over the last few months and may actually be approaching a breakup point.

GoGold Resources

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GoGold Resources are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, GoGold Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMC Metals and GoGold Resources

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

The idea behind CMC Metals and GoGold 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.