Correlation Between Newmont and Northern Star

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

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

Diversification Opportunities for Newmont and Northern Star

0.87

Correlation Coefficient

Newmont  Northern Star

Very poor diversification

The 3 months correlation between Newmont and Northern is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Newmont and Northern Star Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star Resources and Newmont 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 Newmont are associated (or correlated) with Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Resources has no effect on the direction of Newmont i.e., Newmont and Northern Star go up and down completely randomly.

Pair Corralation between Newmont and Northern Star

Assuming the 90 days horizon Newmont is expected to under-perform the Northern Star. In addition to that, Newmont is 1.01 times more volatile than Northern Star Resources. It trades about -0.02 of its total potential returns per unit of risk. Northern Star Resources is currently generating about 0.06 per unit of volatility. If you would invest  514.00  in Northern Star Resources on February 1, 2024 and sell it today you would earn a total of  379.00  from holding Northern Star Resources or generate 73.74% return on investment over 90 days.

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

Newmont  vs.  Northern Star Resources

Newmont

Risk-Adjusted Performance

6 of 100

Modest

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

Northern Star Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Star reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newmont and Northern Star

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

The idea behind Newmont and Northern Star 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.