Correlation Between Gold Resource and IAMGold

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

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

Diversification Opportunities for Gold Resource and IAMGold

-0.15

Correlation Coefficient

Gold Resource  IAMGold

Good diversification

The 3 months correlation between Gold and IAMGold is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Gold Resource and IAMGold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAMGold and Gold Resource 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 Resource are associated (or correlated) with IAMGold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAMGold has no effect on the direction of Gold Resource i.e., Gold Resource and IAMGold go up and down completely randomly.

Pair Corralation between Gold Resource and IAMGold

Given the investment horizon of 90 days Gold Resource is expected to generate 2.42 times more return on investment than IAMGold. However, Gold Resource is 2.42 times more volatile than IAMGold. It trades about 0.07 of its potential returns per unit of risk. IAMGold is currently generating about -0.06 per unit of risk. If you would invest  16.00  in Gold Resource on August 30, 2024 and sell it today you would earn a total of  1.00  from holding Gold Resource or generate 6.25% return on investment over 90 days.

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

Gold Resource  vs.  IAMGold

Gold Resource

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold Resource has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

IAMGold

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IAMGold are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, IAMGold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gold Resource and IAMGold

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

The idea behind Gold Resource and IAMGold 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.