Correlation Between New Gold and NovaGold Resources

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

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

Diversification Opportunities for New Gold and NovaGold Resources

0.43

Correlation Coefficient

New Gold  NovaGold Resources

Very weak diversification

The 3 months correlation between New and NovaGold is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding New Gold and NovaGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaGold Resources 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 NovaGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NovaGold Resources has no effect on the direction of New Gold i.e., New Gold and NovaGold Resources go up and down completely randomly.

Pair Corralation between New Gold and NovaGold Resources

Considering the 90-day investment horizon New Gold is expected to generate 5.99 times less return on investment than NovaGold Resources. In addition to that, New Gold is 1.42 times more volatile than NovaGold Resources. It trades about 0.01 of its total potential returns per unit of risk. NovaGold Resources is currently generating about 0.09 per unit of volatility. If you would invest  352.00  in NovaGold Resources on September 3, 2024 and sell it today you would earn a total of  14.00  from holding NovaGold Resources or generate 3.98% return on investment over 90 days.

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

New Gold  vs.  NovaGold Resources

New Gold

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Gold are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, New Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable technical and fundamental indicators, NovaGold Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with New Gold and NovaGold Resources

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

The idea behind New Gold and NovaGold 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.