Correlation Between US Gold and Flowery Gold

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

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

Diversification Opportunities for US Gold and Flowery Gold

0.29

Correlation Coefficient

US Gold  Flowery Gold

Modest diversification

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

Pair Corralation between US Gold and Flowery Gold

Given the investment horizon of 90 days US Gold is expected to generate 17.81 times less return on investment than Flowery Gold. But when comparing it to its historical volatility, US Gold Corp is 2.22 times less risky than Flowery Gold. It trades about 0.02 of its potential returns per unit of risk. Flowery Gold Mines is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Flowery Gold Mines on December 3, 2024 and sell it today you would earn a total of  10.00  from holding Flowery Gold Mines or generate 66.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

US Gold Corp  vs.  Flowery Gold Mines

US Gold Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in US Gold Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, US Gold is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Flowery Gold Mines

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flowery Gold Mines are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Flowery Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Gold and Flowery Gold

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

The idea behind US Gold Corp and Flowery Gold Mines 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.