Correlation Between Gold Fields and Decade Resources

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

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

Diversification Opportunities for Gold Fields and Decade Resources

0.78

Correlation Coefficient

Gold Fields  Decade Resources

Poor diversification

The 3 months correlation between Gold and Decade is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Gold Fields Ltd and Decade Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decade Resources and Gold Fields 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 Fields Ltd are associated (or correlated) with Decade Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decade Resources has no effect on the direction of Gold Fields i.e., Gold Fields and Decade Resources go up and down completely randomly.

Pair Corralation between Gold Fields and Decade Resources

Considering the 90-day investment horizon Gold Fields is expected to generate 9.65 times less return on investment than Decade Resources. But when comparing it to its historical volatility, Gold Fields Ltd is 6.16 times less risky than Decade Resources. It trades about 0.03 of its potential returns per unit of risk. Decade Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6.99  in Decade Resources on October 5, 2024 and sell it today you would lose (5.41) from holding Decade Resources or give up 77.4% of portfolio value over 90 days.

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

Gold Fields Ltd  vs.  Decade Resources

Gold Fields

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold Fields Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Decade Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Decade Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Decade Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Gold Fields and Decade Resources

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

The idea behind Gold Fields Ltd and Decade Resources 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.