Reading the Correlation Trend of the Mining Stocks
In this part, we’ll examine the relationships that some miners have with the precious metals they mine. A correlation analysis can give us an idea about mining stocks’ price movements and how closely they are tied to changes in precious metal prices.
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The leveraged mining stocks have also recovered in the past few weeks. The Direxion Daily Gold Miners ETF (NUGT) and the Direxion Daily Junior Gold Miners ETF (JNUG) fell 2.2% and 3%, respectively, on August 2, 2017.
Primero and Goldcorp have seen the highest correlation with gold, while Goldcorp has the lowest correlation. Among these four miners, Primero has seen an upward trending correlation with gold, while Royal Gold experienced a downward correlation trend. However, the other two miners have a mixed correlation trend.
An increase in correlation highlights that a price change in gold could cause mining stocks to trade in the same direction. A drop in correlation suggests that mining stocks could move with gold.
Goldcorp has a three-year correlation of ~0.51 with gold and a year-to-date correlation of ~0.61, which suggests that the stock has moved in the same direction as gold ~61.0% of the time in the past year. These correlations can move in different directions at various times.