Correlation Between NovaGold Resources and Mercer International

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

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

Diversification Opportunities for NovaGold Resources and Mercer International

-0.56

Correlation Coefficient

NovaGold Resources  Mercer International

Excellent diversification

The 3 months correlation between NovaGold and Mercer is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding NovaGold Resources and Mercer International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercer International 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 Mercer International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercer International has no effect on the direction of NovaGold Resources i.e., NovaGold Resources and Mercer International go up and down completely randomly.

Pair Corralation between NovaGold Resources and Mercer International

Allowing for the 90-day total investment horizon NovaGold Resources is expected to under-perform the Mercer International. But the stock apears to be less risky and, when comparing its historical volatility, NovaGold Resources is 1.08 times less risky than Mercer International. The stock trades about -0.04 of its potential returns per unit of risk. The Mercer International is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  641.00  in Mercer International on December 28, 2024 and sell it today you would lose (42.00) from holding Mercer International or give up 6.55% of portfolio value over 90 days.

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

NovaGold Resources  vs.  Mercer International

NovaGold Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Mercer International

Risk-Adjusted Performance

Weak

Over the last 90 days Mercer International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Mercer International is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NovaGold Resources and Mercer International

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

The idea behind NovaGold Resources and Mercer International 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.