Correlation Between Sprott Physical and Premium Income

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

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

Diversification Opportunities for Sprott Physical and Premium Income

0.28

Correlation Coefficient

Sprott Physical  Premium Income

Modest diversification

The 3 months correlation between Sprott and Premium is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Physical Gold and Premium Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Income and Sprott Physical 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 Physical Gold are associated (or correlated) with Premium Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Income has no effect on the direction of Sprott Physical i.e., Sprott Physical and Premium Income go up and down completely randomly.

Pair Corralation between Sprott Physical and Premium Income

Assuming the 90 days trading horizon Sprott Physical is expected to generate 1.74 times less return on investment than Premium Income. But when comparing it to its historical volatility, Sprott Physical Gold is 1.36 times less risky than Premium Income. It trades about 0.06 of its potential returns per unit of risk. Premium Income is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  591.00  in Premium Income on September 13, 2024 and sell it today you would earn a total of  46.00  from holding Premium Income or generate 7.78% return on investment over 90 days.

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

Sprott Physical Gold  vs.  Premium Income

Sprott Physical Gold

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Physical Gold are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sprott Physical is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Premium Income

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Premium Income are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Premium Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sprott Physical and Premium Income

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

The idea behind Sprott Physical Gold and Premium Income 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..