Correlation Between Gold Fields and NYSE Composite

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

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

Diversification Opportunities for Gold Fields and NYSE Composite

0.5

Correlation Coefficient

Gold Fields  NYSE Composite

Very weak diversification

The 3 months correlation between Gold and NYSE is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Gold Fields Ltd and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite and Gold Fields 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 Fields Ltd are associated (or correlated) with NYSE Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Composite has no effect on the direction of Gold Fields i.e., Gold Fields and NYSE Composite go up and down completely randomly.

Pair Corralation between Gold Fields and NYSE Composite

Considering the 90-day investment horizon Gold Fields Ltd is expected to generate 4.71 times more return on investment than NYSE Composite. However, Gold Fields is 4.71 times more volatile than NYSE Composite. It trades about 0.28 of its potential returns per unit of risk. NYSE Composite is currently generating about 0.05 per unit of risk. If you would invest  1,237  in Gold Fields Ltd on January 25, 2024 and sell it today you would earn a total of  459.00  from holding Gold Fields Ltd or generate 37.11% return on investment over 90 days.

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

Gold Fields Ltd  vs.  NYSE Composite

Pair Trading with Gold Fields and NYSE Composite

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

The idea behind Gold Fields Ltd and NYSE Composite 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.