Correlation Between Gold Road and Matador Mining

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

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

Diversification Opportunities for Gold Road and Matador Mining

0.74

Correlation Coefficient

Gold Road  Matador Mining

Poor diversification

The 3 months correlation between Gold and Matador is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Gold Road Resources and Matador Mining Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Mining and Gold Road 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 Road Resources are associated (or correlated) with Matador Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matador Mining has no effect on the direction of Gold Road i.e., Gold Road and Matador Mining go up and down completely randomly.

Pair Corralation between Gold Road and Matador Mining

Assuming the 90 days horizon Gold Road Resources is expected to under-perform the Matador Mining. But the pink sheet apears to be less risky and, when comparing its historical volatility, Gold Road Resources is 3.52 times less risky than Matador Mining. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Matador Mining Limited is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  3.33  in Matador Mining Limited on February 28, 2024 and sell it today you would earn a total of  2.67  from holding Matador Mining Limited or generate 80.18% return on investment over 90 days.

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

Gold Road Resources  vs.  Matador Mining Limited

Gold Road Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Road Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Gold Road reported solid returns over the last few months and may actually be approaching a breakup point.

Matador Mining

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Matador Mining Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Matador Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gold Road and Matador Mining

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

The idea behind Gold Road Resources and Matador Mining Limited 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.