Correlation Between Dow and Eldorado Gold

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

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

Diversification Opportunities for Dow and Eldorado Gold

0.4

Correlation Coefficient

Dow  Eldorado Gold

Very weak diversification

The 3 months correlation between Dow and Eldorado is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Eldorado Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eldorado Gold Corp and Dow 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 Dow Inc are associated (or correlated) with Eldorado Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eldorado Gold Corp has no effect on the direction of Dow i.e., Dow and Eldorado Gold go up and down completely randomly.

Pair Corralation between Dow and Eldorado Gold

Considering the 90-day investment horizon Dow Inc is expected to under-perform the Eldorado Gold. But the stock apears to be less risky and, when comparing its historical volatility, Dow Inc is 1.77 times less risky than Eldorado Gold. The stock trades about -0.09 of its potential returns per unit of risk. The Eldorado Gold Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,475  in Eldorado Gold Corp on March 7, 2024 and sell it today you would earn a total of  99.00  from holding Eldorado Gold Corp or generate 6.71% return on investment over 90 days.

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

Dow Inc  vs.  Eldorado Gold Corp

Dow Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dow is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Eldorado Gold Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eldorado Gold Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Eldorado Gold displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dow and Eldorado Gold

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

The idea behind Dow Inc and Eldorado 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.