Correlation Between Doman Building and Cerrado Gold

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

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

Diversification Opportunities for Doman Building and Cerrado Gold

-0.64

Correlation Coefficient

Doman Building  Cerrado Gold

Excellent diversification

The 3 months correlation between Doman and Cerrado is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Doman Building Materials and Cerrado Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cerrado Gold Corp and Doman Building 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 Doman Building Materials are associated (or correlated) with Cerrado Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cerrado Gold Corp has no effect on the direction of Doman Building i.e., Doman Building and Cerrado Gold go up and down completely randomly.

Pair Corralation between Doman Building and Cerrado Gold

Assuming the 90 days trading horizon Doman Building Materials is expected to generate 0.27 times more return on investment than Cerrado Gold. However, Doman Building Materials is 3.64 times less risky than Cerrado Gold. It trades about 0.03 of its potential returns per unit of risk. Cerrado Gold Corp is currently generating about 0.01 per unit of risk. If you would invest  653.00  in Doman Building Materials on October 25, 2024 and sell it today you would earn a total of  156.00  from holding Doman Building Materials or generate 23.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Doman Building Materials  vs.  Cerrado Gold Corp

Doman Building Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Doman Building Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Doman Building is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cerrado Gold Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cerrado Gold Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Cerrado Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Doman Building and Cerrado Gold

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

The idea behind Doman Building Materials and Cerrado Gold Corp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.