Correlation Between NYSE Composite and Sprott Uranium

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

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

Diversification Opportunities for NYSE Composite and Sprott Uranium

0.69

Correlation Coefficient

NYSE Composite  Sprott Uranium

Poor diversification

The 3 months correlation between NYSE and Sprott is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Sprott Uranium Miners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Uranium Miners and NYSE Composite 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 NYSE Composite are associated (or correlated) with Sprott Uranium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Uranium Miners has no effect on the direction of NYSE Composite i.e., NYSE Composite and Sprott Uranium go up and down completely randomly.

Pair Corralation between NYSE Composite and Sprott Uranium

Assuming the 90 days trading horizon NYSE Composite is expected to generate 3.05 times less return on investment than Sprott Uranium. But when comparing it to its historical volatility, NYSE Composite is 4.03 times less risky than Sprott Uranium. It trades about 0.12 of its potential returns per unit of risk. Sprott Uranium Miners is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,185  in Sprott Uranium Miners on August 30, 2024 and sell it today you would earn a total of  562.00  from holding Sprott Uranium Miners or generate 13.43% return on investment over 90 days.

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

NYSE Composite  vs.  Sprott Uranium Miners

Pair Trading with NYSE Composite and Sprott Uranium

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

The idea behind NYSE Composite and Sprott Uranium Miners 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.