Correlation Between CMC Metals and Leocor Gold

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

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

Diversification Opportunities for CMC Metals and Leocor Gold

0.33

Correlation Coefficient

CMC Metals  Leocor Gold

Weak diversification

The 3 months correlation between CMC and Leocor is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and Leocor Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leocor Gold 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 Leocor Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leocor Gold has no effect on the direction of CMC Metals i.e., CMC Metals and Leocor Gold go up and down completely randomly.

Pair Corralation between CMC Metals and Leocor Gold

Assuming the 90 days horizon CMC Metals is expected to generate 2.02 times more return on investment than Leocor Gold. However, CMC Metals is 2.02 times more volatile than Leocor Gold. It trades about 0.03 of its potential returns per unit of risk. Leocor Gold is currently generating about -0.14 per unit of risk. If you would invest  1.74  in CMC Metals on December 28, 2024 and sell it today you would lose (0.56) from holding CMC Metals or give up 32.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	83.61%
Values	Daily Returns

CMC Metals  vs.  Leocor Gold

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.

Leocor Gold

Risk-Adjusted Performance

Very Weak

Over the last 90 days Leocor Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CMC Metals and Leocor Gold

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

The idea behind CMC Metals and Leocor Gold 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.