Correlation Between CMC Metals and Outcrop Gold

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

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

Diversification Opportunities for CMC Metals and Outcrop Gold

0.61

Correlation Coefficient

CMC Metals  Outcrop Gold

Poor diversification

The 3 months correlation between CMC and Outcrop is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and Outcrop Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Outcrop Gold Corp and CMC Metals 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 CMC Metals are associated (or correlated) with Outcrop Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Outcrop Gold Corp has no effect on the direction of CMC Metals i.e., CMC Metals and Outcrop Gold go up and down completely randomly.

Pair Corralation between CMC Metals and Outcrop Gold

Assuming the 90 days horizon CMC Metals is expected to generate 3.34 times more return on investment than Outcrop Gold. However, CMC Metals is 3.34 times more volatile than Outcrop Gold Corp. It trades about 0.06 of its potential returns per unit of risk. Outcrop Gold Corp is currently generating about 0.0 per unit of risk. If you would invest  3.00  in CMC Metals on September 13, 2024 and sell it today you would lose (1.00) from holding CMC Metals or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

CMC Metals  vs.  Outcrop Gold Corp

CMC Metals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CMC Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Outcrop Gold Corp

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with CMC Metals and Outcrop Gold

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

The idea behind CMC Metals and Outcrop Gold Corp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.