Correlation Between New Gold and Commercial Metals

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

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

Diversification Opportunities for New Gold and Commercial Metals

-0.48

Correlation Coefficient

New Gold  Commercial Metals

Very good diversification

The 3 months correlation between New and Commercial is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding New Gold and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals 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 Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of New Gold i.e., New Gold and Commercial Metals go up and down completely randomly.

Pair Corralation between New Gold and Commercial Metals

Considering the 90-day investment horizon New Gold is expected to generate 1.99 times more return on investment than Commercial Metals. However, New Gold is 1.99 times more volatile than Commercial Metals. It trades about 0.01 of its potential returns per unit of risk. Commercial Metals is currently generating about -0.24 per unit of risk. If you would invest  267.00  in New Gold on September 18, 2024 and sell it today you would lose (1.00) from holding New Gold or give up 0.37% of portfolio value over 90 days.

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

New Gold  vs.  Commercial Metals

New Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Commercial Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating primary indicators, Commercial Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with New Gold and Commercial Metals

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

The idea behind New Gold and Commercial Metals 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.