Correlation Between CMC Metals and Gemfields Group

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

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

Diversification Opportunities for CMC Metals and Gemfields Group

-0.09

Correlation Coefficient

CMC Metals  Gemfields Group

Good diversification

The 3 months correlation between CMC and Gemfields is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and Gemfields Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gemfields Group 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 Gemfields Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gemfields Group has no effect on the direction of CMC Metals i.e., CMC Metals and Gemfields Group go up and down completely randomly.

Pair Corralation between CMC Metals and Gemfields Group

Assuming the 90 days horizon CMC Metals is expected to generate 3.85 times more return on investment than Gemfields Group. However, CMC Metals is 3.85 times more volatile than Gemfields Group Limited. It trades about 0.07 of its potential returns per unit of risk. Gemfields Group Limited is currently generating about -0.03 per unit of risk. If you would invest  11.00  in CMC Metals on August 31, 2024 and sell it today you would lose (10.00) from holding CMC Metals or give up 90.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	47.46%
Values	Daily Returns

CMC Metals  vs.  Gemfields Group Limited

CMC Metals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 12 (%) 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.

Gemfields Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gemfields Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Gemfields Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CMC Metals and Gemfields Group

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

The idea behind CMC Metals and Gemfields Group Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.