Correlation Between NovaGold Resources and Entree Resources

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

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

Diversification Opportunities for NovaGold Resources and Entree Resources

-0.54

Correlation Coefficient

NovaGold Resources  Entree Resources

Excellent diversification

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

Pair Corralation between NovaGold Resources and Entree Resources

Assuming the 90 days horizon NovaGold Resources is expected to under-perform the Entree Resources. In addition to that, NovaGold Resources is 1.41 times more volatile than Entree Resources. It trades about -0.02 of its total potential returns per unit of risk. Entree Resources is currently generating about 0.06 per unit of volatility. If you would invest  117.00  in Entree Resources on September 4, 2024 and sell it today you would earn a total of  79.00  from holding Entree Resources or generate 67.52% return on investment over 90 days.

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

NovaGold Resources  vs.  Entree Resources

NovaGold Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, NovaGold Resources is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Entree Resources

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entree Resources are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Entree Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NovaGold Resources and Entree Resources

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

The idea behind NovaGold Resources and Entree Resources 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 Anywhere module to track or share privately all of your investments from the convenience of any device.