Correlation Between Visible Gold and Unigold

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

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

Diversification Opportunities for Visible Gold and Unigold

-0.23

Correlation Coefficient

Visible Gold  Unigold

Very good diversification

The 3 months correlation between Visible and Unigold is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Visible Gold Mines and Unigold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unigold and Visible 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 Visible Gold Mines are associated (or correlated) with Unigold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unigold has no effect on the direction of Visible Gold i.e., Visible Gold and Unigold go up and down completely randomly.

Pair Corralation between Visible Gold and Unigold

Assuming the 90 days horizon Visible Gold Mines is expected to under-perform the Unigold. But the stock apears to be less risky and, when comparing its historical volatility, Visible Gold Mines is 2.26 times less risky than Unigold. The stock trades about 0.0 of its potential returns per unit of risk. The Unigold is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Unigold on December 24, 2024 and sell it today you would earn a total of  1.50  from holding Unigold or generate 21.43% return on investment over 90 days.

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

Visible Gold Mines  vs.  Unigold

Visible Gold Mines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Visible Gold Mines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Visible Gold is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Unigold

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Unigold are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Unigold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visible Gold and Unigold

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

The idea behind Visible Gold Mines and Unigold 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.