Correlation Between United States and NovaGold Resources

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

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

Diversification Opportunities for United States and NovaGold Resources

-0.25

Correlation Coefficient

United States  NovaGold Resources

Very good diversification

The 3 months correlation between United and NovaGold is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and NovaGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaGold Resources and United States 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 United States Steel are associated (or correlated) with NovaGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NovaGold Resources has no effect on the direction of United States i.e., United States and NovaGold Resources go up and down completely randomly.

Pair Corralation between United States and NovaGold Resources

Taking into account the 90-day investment horizon United States Steel is expected to generate 1.08 times more return on investment than NovaGold Resources. However, United States is 1.08 times more volatile than NovaGold Resources. It trades about 0.08 of its potential returns per unit of risk. NovaGold Resources is currently generating about -0.02 per unit of risk. If you would invest  3,556  in United States Steel on September 2, 2024 and sell it today you would earn a total of  521.00  from holding United States Steel or generate 14.65% return on investment over 90 days.

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

United States Steel  vs.  NovaGold Resources

United States Steel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, United States showed solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable technical and fundamental indicators, NovaGold Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United States and NovaGold Resources

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

The idea behind United States Steel and NovaGold 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.