Correlation Between Gold Reserve and Tectonic Metals

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

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

Diversification Opportunities for Gold Reserve and Tectonic Metals

0.75

Correlation Coefficient

Gold Reserve  Tectonic Metals

Poor diversification

The 3 months correlation between Gold and Tectonic is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Gold Reserve and Tectonic Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tectonic Metals and Gold Reserve 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 Gold Reserve are associated (or correlated) with Tectonic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tectonic Metals has no effect on the direction of Gold Reserve i.e., Gold Reserve and Tectonic Metals go up and down completely randomly.

Pair Corralation between Gold Reserve and Tectonic Metals

Assuming the 90 days horizon Gold Reserve is expected to generate 0.88 times more return on investment than Tectonic Metals. However, Gold Reserve is 1.13 times less risky than Tectonic Metals. It trades about -0.01 of its potential returns per unit of risk. Tectonic Metals is currently generating about -0.04 per unit of risk. If you would invest  240.00  in Gold Reserve on October 3, 2024 and sell it today you would lose (85.00) from holding Gold Reserve or give up 35.42% of portfolio value over 90 days.

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

Gold Reserve  vs.  Tectonic Metals

Gold Reserve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold Reserve has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Tectonic Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tectonic Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Gold Reserve and Tectonic Metals

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

The idea behind Gold Reserve and Tectonic Metals 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.