Correlation Between Gatos Silver and Transition Metals

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

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

Diversification Opportunities for Gatos Silver and Transition Metals

0.35

Correlation Coefficient

Gatos Silver  Transition Metals

Weak diversification

The 3 months correlation between Gatos and Transition is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Gatos Silver and Transition Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transition Metals Corp and Gatos Silver 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 Gatos Silver are associated (or correlated) with Transition Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transition Metals Corp has no effect on the direction of Gatos Silver i.e., Gatos Silver and Transition Metals go up and down completely randomly.

Pair Corralation between Gatos Silver and Transition Metals

Assuming the 90 days trading horizon Gatos Silver is expected to under-perform the Transition Metals. But the stock apears to be less risky and, when comparing its historical volatility, Gatos Silver is 2.51 times less risky than Transition Metals. The stock trades about -0.15 of its potential returns per unit of risk. The Transition Metals Corp is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Transition Metals Corp on September 22, 2024 and sell it today you would lose (1.00) from holding Transition Metals Corp or give up 16.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Gatos Silver  vs.  Transition Metals Corp

Gatos Silver

Risk-Adjusted Performance

0 of 100

Very Weak

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

Transition Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transition Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Transition Metals is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Gatos Silver and Transition Metals

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

The idea behind Gatos Silver and Transition Metals 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.