Correlation Between Gold Fields and Pan American

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

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

Diversification Opportunities for Gold Fields and Pan American

0.86

Correlation Coefficient

Gold Fields  Pan American

Very poor diversification

The 3 months correlation between Gold and Pan is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Gold Fields Ltd and Pan American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan American Silver and Gold Fields 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 Gold Fields Ltd are associated (or correlated) with Pan American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan American Silver has no effect on the direction of Gold Fields i.e., Gold Fields and Pan American go up and down completely randomly.

Pair Corralation between Gold Fields and Pan American

Considering the 90-day investment horizon Gold Fields is expected to generate 1.89 times less return on investment than Pan American. But when comparing it to its historical volatility, Gold Fields Ltd is 1.04 times less risky than Pan American. It trades about 0.05 of its potential returns per unit of risk. Pan American Silver is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,906  in Pan American Silver on September 2, 2024 and sell it today you would earn a total of  291.00  from holding Pan American Silver or generate 15.27% return on investment over 90 days.

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

Gold Fields Ltd  vs.  Pan American Silver

Gold Fields

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Fields Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Gold Fields may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pan American Silver

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pan American Silver are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Pan American unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gold Fields and Pan American

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

The idea behind Gold Fields Ltd and Pan American Silver 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.