Correlation Between New Gold and IAMGold

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

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

Diversification Opportunities for New Gold and IAMGold

0.6

Correlation Coefficient

New Gold  IAMGold

Poor diversification

The 3 months correlation between New and IAMGold is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding New Gold and IAMGold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAMGold and New 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 New Gold 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 New Gold i.e., New Gold and IAMGold go up and down completely randomly.

Pair Corralation between New Gold and IAMGold

Assuming the 90 days trading horizon New Gold is expected to generate 0.78 times more return on investment than IAMGold. However, New Gold is 1.29 times less risky than IAMGold. It trades about 0.12 of its potential returns per unit of risk. IAMGold is currently generating about 0.09 per unit of risk. If you would invest  316.00  in New Gold on August 31, 2024 and sell it today you would earn a total of  69.00  from holding New Gold or generate 21.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

New Gold  vs.  IAMGold

New Gold

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Gold are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, New Gold displayed solid returns over the last few months and may actually be approaching a breakup point.

IAMGold

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IAMGold are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, IAMGold displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Gold and IAMGold

The main advantage of trading using opposite New Gold and IAMGold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Gold 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 New Gold 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.