A correlation analysis gives us an idea about mining stocks’ price movements and how closely they follow changes in precious metal prices. It’s important to look at recent correlation trends when making investment decisions.
Funds such as the iShares MSCI Gold Mining ETF (RING) and the VanEck Vectors Junior Gold Miners ETF (GDXJ) are correlated with gold. These two funds saw their prices fall 2.6% and 1.4%, respectively, on Monday.
Among these miners in our analysis, Primero Mining has the highest correlation with gold, and First Majestic Silver has the lowest correlation. B2Gold and First Majestic Silver have seen declining correlation trends to gold, while Primero Mining saw a rising trend in correlation.
A rise in correlation is an indicator that a price change in gold could cause miners to trade in the same direction. A fall in correlation suggests that it’s less likely that miners would move with gold.
B2Gold saw its correlation with gold drop from a three-year correlation of ~0.72 and a year-to-date correlation of ~0.66. A correlation of ~0.66 means that the company has moved in the same direction as gold ~66% of the time over the past year.
It’s important to remember that correlations can move in different directions at different times.