Correlation Between Eldorado Gold and IAMGold

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

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

Diversification Opportunities for Eldorado Gold and IAMGold

0.51

Correlation Coefficient

Eldorado Gold  IAMGold

Very weak diversification

The 3 months correlation between Eldorado and IAMGold is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Eldorado Gold Corp and IAMGold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAMGold and Eldorado 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 Eldorado Gold Corp are associated (or correlated) with IAMGold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAMGold has no effect on the direction of Eldorado Gold i.e., Eldorado Gold and IAMGold go up and down completely randomly.

Pair Corralation between Eldorado Gold and IAMGold

Assuming the 90 days trading horizon Eldorado Gold is expected to generate 7.02 times less return on investment than IAMGold. But when comparing it to its historical volatility, Eldorado Gold Corp is 1.58 times less risky than IAMGold. It trades about 0.02 of its potential returns per unit of risk. IAMGold is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  657.00  in IAMGold on August 31, 2024 and sell it today you would earn a total of  115.00  from holding IAMGold or generate 17.5% return on investment over 90 days.

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

Eldorado Gold Corp  vs.  IAMGold

Eldorado Gold Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eldorado Gold Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Eldorado Gold is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

IAMGold

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IAMGold are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, IAMGold displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eldorado Gold and IAMGold

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

The idea behind Eldorado Gold Corp and IAMGold 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.