Correlation Between NovaGold Resources and Erdene Resource

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

By analyzing existing cross correlation between NovaGold Resources and Erdene Resource Development, you can compare the effects of market volatilities on NovaGold Resources and Erdene Resource 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 NovaGold Resources with a short position of Erdene Resource. Check out your portfolio center. Please also check ongoing floating volatility patterns of NovaGold Resources and Erdene Resource.

Diversification Opportunities for NovaGold Resources and Erdene Resource

-0.5

Correlation Coefficient

NovaGold Resources  Erdene Resource

Very good diversification

The 3 months correlation between NovaGold and Erdene is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding NovaGold Resources and Erdene Resource Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erdene Resource Deve and NovaGold Resources 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 NovaGold Resources are associated (or correlated) with Erdene Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erdene Resource Deve has no effect on the direction of NovaGold Resources i.e., NovaGold Resources and Erdene Resource go up and down completely randomly.

Pair Corralation between NovaGold Resources and Erdene Resource

Assuming the 90 days horizon NovaGold Resources is expected to under-perform the Erdene Resource. But the stock apears to be less risky and, when comparing its historical volatility, NovaGold Resources is 1.18 times less risky than Erdene Resource. The stock trades about -0.01 of its potential returns per unit of risk. The Erdene Resource Development is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Erdene Resource Development on September 3, 2024 and sell it today you would earn a total of  14.00  from holding Erdene Resource Development or generate 31.11% return on investment over 90 days.

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

NovaGold Resources  vs.  Erdene Resource Development

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. In spite of very healthy basic indicators, NovaGold Resources is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Erdene Resource Deve

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erdene Resource Development are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, Erdene Resource displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NovaGold Resources and Erdene Resource

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

The idea behind NovaGold Resources and Erdene Resource Development 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.