Correlation Between Newcore Gold and Cerrado Gold

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

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

Diversification Opportunities for Newcore Gold and Cerrado Gold

0.54

Correlation Coefficient

Newcore Gold  Cerrado Gold

Very weak diversification

The 3 months correlation between Newcore and Cerrado is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Newcore Gold and Cerrado Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cerrado Gold and Newcore Gold 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 Newcore Gold are associated (or correlated) with Cerrado Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cerrado Gold has no effect on the direction of Newcore Gold i.e., Newcore Gold and Cerrado Gold go up and down completely randomly.

Pair Corralation between Newcore Gold and Cerrado Gold

Assuming the 90 days horizon Newcore Gold is expected to generate 0.82 times more return on investment than Cerrado Gold. However, Newcore Gold is 1.22 times less risky than Cerrado Gold. It trades about 0.25 of its potential returns per unit of risk. Cerrado Gold is currently generating about 0.13 per unit of risk. If you would invest  21.00  in Newcore Gold on December 30, 2024 and sell it today you would earn a total of  18.00  from holding Newcore Gold or generate 85.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Newcore Gold  vs.  Cerrado Gold

Newcore Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Newcore Gold are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Newcore Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Cerrado Gold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cerrado Gold are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cerrado Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newcore Gold and Cerrado Gold

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

The idea behind Newcore Gold and Cerrado Gold 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.