Understanding Correlation Uptrends among Mining Players in June 2017
Precious metal stocks
As we analyze the impact of another interest rate hike on precious metals and the mining sector, we also have to read into the relationship between these mining shares and gold. Correlational analysis can help us compare price movements in mining stocks and understand which stocks react the most and the least to changes in precious metals.
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Funds such as the VanEck Vectors Junior Gold Miners (GDXJ) and the iShares MSCI Global Gold Min (RING) also have strong correlations with gold. These funds saw their share prices drop 3.5% and 3.1%, respectively, on Wednesday, June 14, as precious metals tumbled.
Among the four above mining companies, Primero has the highest correlation with gold, while Goldcorp has the lowest correlation. Over the past three years, Primero and Goldcorp have seen upward correlations in their trends, while the other two mining companies have seen mixed trends in their correlations.
An increase in correlation means that it’s more likely that a stock will carefully track precious metals. An increase in the price of gold could boost mining companies’ share prices, and vice versa.
Goldcorp has a three-year correlation of ~0.51 with gold and a year-to-date correlation of ~0.61. This correlation of ~0.61 means that Goldcorp has moved in the same direction as gold ~61% of the time over the past year.
Investors also have to remember that correlations can move in different directions at different times.