Correlation Between GoldMining and Commercial Metals

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

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

Diversification Opportunities for GoldMining and Commercial Metals

-0.79

Correlation Coefficient

GoldMining  Commercial Metals

Pay attention - limited upside

The 3 months correlation between GoldMining and Commercial is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding GoldMining and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals and GoldMining 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 GoldMining are associated (or correlated) with Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of GoldMining i.e., GoldMining and Commercial Metals go up and down completely randomly.

Pair Corralation between GoldMining and Commercial Metals

Given the investment horizon of 90 days GoldMining is expected to under-perform the Commercial Metals. But the stock apears to be less risky and, when comparing its historical volatility, GoldMining is 1.01 times less risky than Commercial Metals. The stock trades about -0.08 of its potential returns per unit of risk. The Commercial Metals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5,172  in Commercial Metals on September 18, 2024 and sell it today you would earn a total of  456.00  from holding Commercial Metals or generate 8.82% return on investment over 90 days.

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

GoldMining  vs.  Commercial Metals

GoldMining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Commercial Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating primary indicators, Commercial Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GoldMining and Commercial Metals

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

The idea behind GoldMining and Commercial 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.