Correlation Between Gold Road and Metro Mining

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

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

Diversification Opportunities for Gold Road and Metro Mining

0.91

Correlation Coefficient

Gold Road  Metro Mining

Almost no diversification

The 3 months correlation between Gold and Metro is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Gold Road Resources and Metro Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Mining and Gold Road 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 Road Resources are associated (or correlated) with Metro Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Mining has no effect on the direction of Gold Road i.e., Gold Road and Metro Mining go up and down completely randomly.

Pair Corralation between Gold Road and Metro Mining

Assuming the 90 days trading horizon Gold Road is expected to generate 2.39 times less return on investment than Metro Mining. But when comparing it to its historical volatility, Gold Road Resources is 1.71 times less risky than Metro Mining. It trades about 0.19 of its potential returns per unit of risk. Metro Mining is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  3.60  in Metro Mining on September 5, 2024 and sell it today you would earn a total of  2.80  from holding Metro Mining or generate 77.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Gold Road Resources  vs.  Metro Mining

Gold Road Resources

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Road Resources are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gold Road unveiled solid returns over the last few months and may actually be approaching a breakup point.

Metro Mining

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Mining are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Metro Mining unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gold Road and Metro Mining

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

The idea behind Gold Road Resources and Metro Mining 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 Transaction History module to view history of all your transactions and understand their impact on performance.