Correlation Between Sprott Gold and Financial Services

Can any of the company-specific risk be diversified away by investing in both Sprott Gold and Financial Services 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 Sprott Gold and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sprott Gold Equity and Financial Services Portfolio, you can compare the effects of market volatilities on Sprott Gold and Financial Services 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 Sprott Gold with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sprott Gold and Financial Services.

Diversification Opportunities for Sprott Gold and Financial Services

0.52

Correlation Coefficient

Sprott Gold  Financial Services

Very weak diversification

The 3 months correlation between Sprott and Financial is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Gold Equity and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Sprott 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 Sprott Gold Equity are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Sprott Gold i.e., Sprott Gold and Financial Services go up and down completely randomly.

Pair Corralation between Sprott Gold and Financial Services

Assuming the 90 days horizon Sprott Gold Equity is expected to generate 2.31 times more return on investment than Financial Services. However, Sprott Gold is 2.31 times more volatile than Financial Services Portfolio. It trades about 0.29 of its potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.16 per unit of risk. If you would invest  3,879  in Sprott Gold Equity on February 20, 2024 and sell it today you would earn a total of  1,215  from holding Sprott Gold Equity or generate 31.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Sprott Gold Equity  vs.  Financial Services Portfolio

Sprott Gold Equity

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Gold Equity are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Sprott Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Financial Services

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Portfolio are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Financial Services may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Sprott Gold and Financial Services

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

The idea behind Sprott Gold Equity and Financial Services Portfolio 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.