Correlation Between Sprott Physical and Canadian Life

Can any of the company-specific risk be diversified away by investing in both Sprott Physical and Canadian Life 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 Canadian Life 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 Canadian Life Companies, you can compare the effects of market volatilities on Sprott Physical and Canadian Life 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 Canadian Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sprott Physical and Canadian Life.

Diversification Opportunities for Sprott Physical and Canadian Life

0.29

Correlation Coefficient

Sprott Physical  Canadian Life

Modest diversification

The 3 months correlation between Sprott and Canadian is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Physical Gold and Canadian Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Life Companies 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 Canadian Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Life Companies has no effect on the direction of Sprott Physical i.e., Sprott Physical and Canadian Life go up and down completely randomly.

Pair Corralation between Sprott Physical and Canadian Life

Assuming the 90 days trading horizon Sprott Physical Gold is expected to generate 3.19 times more return on investment than Canadian Life. However, Sprott Physical is 3.19 times more volatile than Canadian Life Companies. It trades about 0.08 of its potential returns per unit of risk. Canadian Life Companies is currently generating about 0.15 per unit of risk. If you would invest  2,753  in Sprott Physical Gold on September 21, 2024 and sell it today you would earn a total of  122.00  from holding Sprott Physical Gold or generate 4.43% 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.  Canadian Life Companies

Sprott Physical Gold

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Physical Gold are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Sprott Physical is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Canadian Life Companies

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Life Companies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Canadian Life is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sprott Physical and Canadian Life

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

The idea behind Sprott Physical Gold and Canadian Life Companies 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.