Correlation Between E L and GoGold Resources

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

By analyzing existing cross correlation between E L Financial Corp and GoGold Resources, you can compare the effects of market volatilities on E L and GoGold 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 E L with a short position of GoGold Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of E L and GoGold Resources.

Diversification Opportunities for E L and GoGold Resources

-0.41

Correlation Coefficient

E L  GoGold Resources

Very good diversification

The 3 months correlation between ELF and GoGold is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding E L Financial Corp and GoGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GoGold Resources and E L 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 E L Financial Corp are associated (or correlated) with GoGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GoGold Resources has no effect on the direction of E L i.e., E L and GoGold Resources go up and down completely randomly.

Pair Corralation between E L and GoGold Resources

Assuming the 90 days trading horizon E L is expected to generate 1.19 times less return on investment than GoGold Resources. But when comparing it to its historical volatility, E L Financial Corp is 2.59 times less risky than GoGold Resources. It trades about 0.09 of its potential returns per unit of risk. GoGold Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  116.00  in GoGold Resources on September 12, 2024 and sell it today you would earn a total of  6.00  from holding GoGold Resources or generate 5.17% return on investment over 90 days.

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

E L Financial Corp  vs.  GoGold Resources

E L Financial

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in E L Financial Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, E L may actually be approaching a critical reversion point that can send shares even higher in January 2025.

GoGold Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GoGold Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, GoGold Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with E L and GoGold Resources

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

The idea behind E L Financial Corp and GoGold 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.