Correlation Between P2 Gold and CMC Metals

Can any of the company-specific risk be diversified away by investing in both P2 Gold and CMC 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 P2 Gold and CMC Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between P2 Gold and CMC Metals, you can compare the effects of market volatilities on P2 Gold and CMC 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 P2 Gold with a short position of CMC Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of P2 Gold and CMC Metals.

Diversification Opportunities for P2 Gold and CMC Metals

-0.29

Correlation Coefficient

P2 Gold  CMC Metals

Very good diversification

The 3 months correlation between PGLDF and CMC is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding P2 Gold and CMC Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Metals and P2 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 P2 Gold are associated (or correlated) with CMC Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Metals has no effect on the direction of P2 Gold i.e., P2 Gold and CMC Metals go up and down completely randomly.

Pair Corralation between P2 Gold and CMC Metals

Assuming the 90 days horizon P2 Gold is expected to generate 0.52 times more return on investment than CMC Metals. However, P2 Gold is 1.91 times less risky than CMC Metals. It trades about 0.08 of its potential returns per unit of risk. CMC Metals is currently generating about 0.03 per unit of risk. If you would invest  4.30  in P2 Gold on December 28, 2024 and sell it today you would earn a total of  1.00  from holding P2 Gold or generate 23.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.0%
Values	Daily Returns

P2 Gold  vs.  CMC Metals

P2 Gold

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in P2 Gold are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, P2 Gold reported solid returns over the last few months and may actually be approaching a breakup point.

CMC Metals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CMC Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with P2 Gold and CMC Metals

The main advantage of trading using opposite P2 Gold and CMC Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if P2 Gold position performs unexpectedly, CMC 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 CMC Metals will offset losses from the drop in CMC Metals' long position.

The idea behind P2 Gold and CMC 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.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.