Correlation Between GMV Minerals and CMC Metals

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

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

Diversification Opportunities for GMV Minerals and CMC Metals

0.07

Correlation Coefficient

GMV Minerals  CMC Metals

Significant diversification

The 3 months correlation between GMV and CMC is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding GMV Minerals and CMC Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Metals and GMV Minerals 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 GMV Minerals are associated (or correlated) with CMC Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Metals has no effect on the direction of GMV Minerals i.e., GMV Minerals and CMC Metals go up and down completely randomly.

Pair Corralation between GMV Minerals and CMC Metals

Assuming the 90 days horizon GMV Minerals is expected to generate 1.58 times less return on investment than CMC Metals. But when comparing it to its historical volatility, GMV Minerals is 2.58 times less risky than CMC Metals. It trades about 0.07 of its potential returns per unit of risk. CMC Metals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3.00  in CMC Metals on December 3, 2024 and sell it today you would lose (1.00) from holding CMC Metals or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

GMV Minerals  vs.  CMC Metals

GMV Minerals

Risk-Adjusted Performance

Very Weak

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

CMC Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CMC Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMV Minerals and CMC Metals

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

The idea behind GMV Minerals and CMC 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.