Correlation Between Brazil Potash and US GoldMining

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

By analyzing existing cross correlation between Brazil Potash Corp and US GoldMining Common, you can compare the effects of market volatilities on Brazil Potash and US GoldMining 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 Brazil Potash with a short position of US GoldMining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brazil Potash and US GoldMining.

Diversification Opportunities for Brazil Potash and US GoldMining

0.44

Correlation Coefficient

Brazil Potash  US GoldMining

Very weak diversification

The 3 months correlation between Brazil and USGO is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Brazil Potash Corp and US GoldMining Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US GoldMining Common and Brazil Potash 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 Brazil Potash Corp are associated (or correlated) with US GoldMining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US GoldMining Common has no effect on the direction of Brazil Potash i.e., Brazil Potash and US GoldMining go up and down completely randomly.

Pair Corralation between Brazil Potash and US GoldMining

Considering the 90-day investment horizon Brazil Potash Corp is expected to under-perform the US GoldMining. In addition to that, Brazil Potash is 1.05 times more volatile than US GoldMining Common. It trades about -0.43 of its total potential returns per unit of risk. US GoldMining Common is currently generating about -0.26 per unit of volatility. If you would invest  1,120  in US GoldMining Common on September 23, 2024 and sell it today you would lose (288.00) from holding US GoldMining Common or give up 25.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	85.71%
Values	Daily Returns

Brazil Potash Corp  vs.  US GoldMining Common

Brazil Potash Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brazil Potash Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

US GoldMining Common

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US GoldMining Common are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, US GoldMining displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brazil Potash and US GoldMining

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

The idea behind Brazil Potash Corp and US GoldMining Common 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.