Correlation Between CMC Metals and Sierra Madre

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

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

Diversification Opportunities for CMC Metals and Sierra Madre

-0.04

Correlation Coefficient

CMC Metals  Sierra Madre

Good diversification

The 3 months correlation between CMC and Sierra is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and Sierra Madre Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Madre Gold 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 Sierra Madre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Madre Gold has no effect on the direction of CMC Metals i.e., CMC Metals and Sierra Madre go up and down completely randomly.

Pair Corralation between CMC Metals and Sierra Madre

Assuming the 90 days horizon CMC Metals is expected to generate 6.26 times more return on investment than Sierra Madre. However, CMC Metals is 6.26 times more volatile than Sierra Madre Gold. It trades about 0.16 of its potential returns per unit of risk. Sierra Madre Gold is currently generating about -0.03 per unit of risk. If you would invest  1.00  in CMC Metals on September 3, 2024 and sell it today you would earn a total of  0.00  from holding CMC Metals or generate 0.0% return on investment over 90 days.

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

CMC Metals  vs.  Sierra Madre Gold

CMC Metals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 12 (%) 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.

Sierra Madre Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sierra Madre Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CMC Metals and Sierra Madre

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

The idea behind CMC Metals and Sierra Madre Gold 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.