Correlation Between Eldorado Gold and NovaGold Resources

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

Diversification Opportunities for Eldorado Gold and NovaGold Resources

0.46

Correlation Coefficient

Eldorado Gold  NovaGold Resources

Very weak diversification

The 3 months correlation between Eldorado and NovaGold is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Eldorado Gold Corp and NovaGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaGold Resources and Eldorado 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 Eldorado Gold Corp 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 Eldorado Gold i.e., Eldorado Gold and NovaGold Resources go up and down completely randomly.

Pair Corralation between Eldorado Gold and NovaGold Resources

Considering the 90-day investment horizon Eldorado Gold Corp is expected to generate 0.75 times more return on investment than NovaGold Resources. However, Eldorado Gold Corp is 1.33 times less risky than NovaGold Resources. It trades about 0.0 of its potential returns per unit of risk. NovaGold Resources is currently generating about -0.02 per unit of risk. If you would invest  1,635  in Eldorado Gold Corp on September 2, 2024 and sell it today you would lose (35.00) from holding Eldorado Gold Corp or give up 2.14% of portfolio value over 90 days.

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

Eldorado Gold Corp  vs.  NovaGold Resources

Eldorado Gold Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eldorado Gold Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Eldorado Gold is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the 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. Despite nearly stable technical and fundamental indicators, NovaGold Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eldorado Gold and NovaGold Resources

The main advantage of trading using opposite Eldorado Gold and NovaGold Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eldorado 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 Eldorado Gold Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.