Correlation Between Royal Gold and Nucor Corp

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

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

Diversification Opportunities for Royal Gold and Nucor Corp

0.2

Correlation Coefficient

Royal Gold  Nucor Corp

Modest diversification

The 3 months correlation between Royal and Nucor is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Royal Gold and Nucor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor Corp and Royal 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 Royal Gold are associated (or correlated) with Nucor Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor Corp has no effect on the direction of Royal Gold i.e., Royal Gold and Nucor Corp go up and down completely randomly.

Pair Corralation between Royal Gold and Nucor Corp

Given the investment horizon of 90 days Royal Gold is expected to generate 0.61 times more return on investment than Nucor Corp. However, Royal Gold is 1.63 times less risky than Nucor Corp. It trades about -0.05 of its potential returns per unit of risk. Nucor Corp is currently generating about -0.11 per unit of risk. If you would invest  14,337  in Royal Gold on September 23, 2024 and sell it today you would lose (956.00) from holding Royal Gold or give up 6.67% of portfolio value over 90 days.

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

Royal Gold  vs.  Nucor Corp

Royal Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Royal Gold is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Nucor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Royal Gold and Nucor Corp

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

The idea behind Royal Gold and Nucor Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.