Correlation Between Dow and Gold Resource

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

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

Diversification Opportunities for Dow and Gold Resource

-0.48

Correlation Coefficient

Dow  Gold Resource

Very good diversification

The 3 months correlation between Dow and Gold is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Gold Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Resource and Dow 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 Dow Inc are associated (or correlated) with Gold Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Resource has no effect on the direction of Dow i.e., Dow and Gold Resource go up and down completely randomly.

Pair Corralation between Dow and Gold Resource

Considering the 90-day investment horizon Dow Inc is expected to under-perform the Gold Resource. But the stock apears to be less risky and, when comparing its historical volatility, Dow Inc is 4.66 times less risky than Gold Resource. The stock trades about -0.08 of its potential returns per unit of risk. The Gold Resource is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  22.00  in Gold Resource on December 26, 2024 and sell it today you would earn a total of  33.00  from holding Gold Resource or generate 150.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Dow Inc  vs.  Gold Resource

Dow Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Gold Resource

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Resource are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Gold Resource displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dow and Gold Resource

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

The idea behind Dow Inc and Gold 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.