Correlation Between US Gold and Solstice Gold

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

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

Diversification Opportunities for US Gold and Solstice Gold

-0.53

Correlation Coefficient

US Gold  Solstice Gold

Excellent diversification

The 3 months correlation between USAU and Solstice is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding US Gold Corp and Solstice Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solstice Gold Corp and US 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 US Gold Corp are associated (or correlated) with Solstice Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solstice Gold Corp has no effect on the direction of US Gold i.e., US Gold and Solstice Gold go up and down completely randomly.

Pair Corralation between US Gold and Solstice Gold

Given the investment horizon of 90 days US Gold is expected to generate 9.1 times less return on investment than Solstice Gold. But when comparing it to its historical volatility, US Gold Corp is 10.78 times less risky than Solstice Gold. It trades about 0.21 of its potential returns per unit of risk. Solstice Gold Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Solstice Gold Corp on September 14, 2024 and sell it today you would earn a total of  0.20  from holding Solstice Gold Corp or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

US Gold Corp  vs.  Solstice Gold Corp

US Gold Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Gold Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, US Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Solstice Gold Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Solstice Gold Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Solstice Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Gold and Solstice Gold

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

The idea behind US Gold Corp and Solstice Gold 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.