Correlation Between Eldorado Gold and Dow
Can any of the company-specific risk be diversified away by investing in both Eldorado Gold and Dow 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 Eldorado Gold and Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eldorado Gold Corp and Dow Inc, you can compare the effects of market volatilities on Eldorado Gold and Dow 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 Eldorado Gold with a short position of Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eldorado Gold and Dow.
Diversification Opportunities for Eldorado Gold and Dow
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Eldorado and Dow is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Eldorado Gold Corp and Dow Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Inc and Eldorado Gold 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 Eldorado Gold Corp are associated (or correlated) with Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Inc has no effect on the direction of Eldorado Gold i.e., Eldorado Gold and Dow go up and down completely randomly.
Pair Corralation between Eldorado Gold and Dow
Considering the 90-day investment horizon Eldorado Gold Corp is expected to generate 1.91 times more return on investment than Dow. However, Eldorado Gold is 1.91 times more volatile than Dow Inc. It trades about 0.05 of its potential returns per unit of risk. Dow Inc is currently generating about -0.02 per unit of risk. If you would invest 1,313 in Eldorado Gold Corp on August 26, 2024 and sell it today you would earn a total of 343.00 from holding Eldorado Gold Corp or generate 26.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eldorado Gold Corp vs. Dow Inc
Performance |
| Timeline |
| Eldorado Gold Corp |
| Dow Inc |
Eldorado Gold and Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eldorado Gold and Dow
The main advantage of trading using opposite Eldorado Gold and Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eldorado Gold position performs unexpectedly, Dow 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 Dow will offset losses from the drop in Dow's long position.The idea behind Eldorado Gold Corp and Dow Inc 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.Check out your portfolio center.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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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