Correlation Between Cerrado Gold and Gold Springs

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

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

Diversification Opportunities for Cerrado Gold and Gold Springs

-0.52

Correlation Coefficient

Cerrado Gold  Gold Springs

Excellent diversification

The 3 months correlation between Cerrado and Gold is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Cerrado Gold and Gold Springs Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Springs Resource and Cerrado Gold 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 Cerrado Gold are associated (or correlated) with Gold Springs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Springs Resource has no effect on the direction of Cerrado Gold i.e., Cerrado Gold and Gold Springs go up and down completely randomly.

Pair Corralation between Cerrado Gold and Gold Springs

Assuming the 90 days horizon Cerrado Gold is expected to generate 0.8 times more return on investment than Gold Springs. However, Cerrado Gold is 1.24 times less risky than Gold Springs. It trades about 0.14 of its potential returns per unit of risk. Gold Springs Resource is currently generating about -0.03 per unit of risk. If you would invest  23.00  in Cerrado Gold on December 29, 2024 and sell it today you would earn a total of  11.00  from holding Cerrado Gold or generate 47.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Cerrado Gold  vs.  Gold Springs Resource

Cerrado Gold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cerrado Gold are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cerrado Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Gold Springs Resource

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gold Springs Resource has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Cerrado Gold and Gold Springs

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

The idea behind Cerrado Gold and Gold Springs Resource 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 Transaction History module to view history of all your transactions and understand their impact on performance.