Correlation Between Wheaton Precious and Royal Gold

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

By analyzing existing cross correlation between Wheaton Precious Metals and Royal Gold, you can compare the effects of market volatilities on Wheaton Precious and Royal Gold 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 Wheaton Precious with a short position of Royal Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wheaton Precious and Royal Gold.

Diversification Opportunities for Wheaton Precious and Royal Gold

0.94

Correlation Coefficient

Wheaton Precious  Royal Gold

Almost no diversification

The 3 months correlation between Wheaton and Royal is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Wheaton Precious Metals and Royal Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Gold and Wheaton Precious 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 Wheaton Precious Metals are associated (or correlated) with Royal Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Gold has no effect on the direction of Wheaton Precious i.e., Wheaton Precious and Royal Gold go up and down completely randomly.

Pair Corralation between Wheaton Precious and Royal Gold

Assuming the 90 days horizon Wheaton Precious Metals is expected to generate 1.27 times more return on investment than Royal Gold. However, Wheaton Precious is 1.27 times more volatile than Royal Gold. It trades about 0.21 of its potential returns per unit of risk. Royal Gold is currently generating about -0.01 per unit of risk. If you would invest  4,523  in Wheaton Precious Metals on February 2, 2024 and sell it today you would earn a total of  378.00  from holding Wheaton Precious Metals or generate 8.36% return on investment over 90 days.

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

Wheaton Precious Metals  vs.  Royal Gold

Wheaton Precious Metals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wheaton Precious Metals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Wheaton Precious reported solid returns over the last few months and may actually be approaching a breakup point.

Royal Gold

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Gold are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Royal Gold may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Wheaton Precious and Royal Gold

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

The idea behind Wheaton Precious Metals and Royal Gold 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.