Correlation Between Seabridge Gold and NovaGold Resources

Can any of the company-specific risk be diversified away by investing in both Seabridge 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 Seabridge 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 Seabridge Gold and NovaGold Resources, you can compare the effects of market volatilities on Seabridge 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 Seabridge Gold with a short position of NovaGold Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seabridge Gold and NovaGold Resources.

Diversification Opportunities for Seabridge Gold and NovaGold Resources

0.29

Correlation Coefficient

Seabridge Gold  NovaGold Resources

Modest diversification

The 3 months correlation between Seabridge and NovaGold is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Seabridge Gold and NovaGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaGold Resources and Seabridge 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 Seabridge 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 Seabridge Gold i.e., Seabridge Gold and NovaGold Resources go up and down completely randomly.

Pair Corralation between Seabridge Gold and NovaGold Resources

Assuming the 90 days trading horizon Seabridge Gold is expected to under-perform the NovaGold Resources. But the stock apears to be less risky and, when comparing its historical volatility, Seabridge Gold is 1.15 times less risky than NovaGold Resources. The stock trades about -0.04 of its potential returns per unit of risk. The NovaGold Resources is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  539.00  in NovaGold Resources on August 31, 2024 and sell it today you would lose (24.00) from holding NovaGold Resources or give up 4.45% of portfolio value over 90 days.

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

Seabridge Gold  vs.  NovaGold Resources

Seabridge Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seabridge Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

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. In spite of very healthy basic indicators, NovaGold Resources is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Seabridge Gold and NovaGold Resources

The main advantage of trading using opposite Seabridge Gold and NovaGold Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seabridge 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 Seabridge 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.