Correlation Between Sprott Physical and Pan American

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

Diversification Opportunities for Sprott Physical and Pan American

0.92

Correlation Coefficient

Sprott Physical  Pan American

Almost no diversification

The 3 months correlation between Sprott and Pan is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Physical Gold and Pan American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan American Silver 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 Pan American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan American Silver has no effect on the direction of Sprott Physical i.e., Sprott Physical and Pan American go up and down completely randomly.

Pair Corralation between Sprott Physical and Pan American

Assuming the 90 days trading horizon Sprott Physical is expected to generate 2.34 times less return on investment than Pan American. But when comparing it to its historical volatility, Sprott Physical Gold is 2.96 times less risky than Pan American. It trades about 0.15 of its potential returns per unit of risk. Pan American Silver is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,595  in Pan American Silver on September 2, 2024 and sell it today you would earn a total of  511.00  from holding Pan American Silver or generate 19.69% return on investment over 90 days.

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

Sprott Physical Gold  vs.  Pan American Silver

Sprott Physical Gold

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Physical Gold are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Sprott Physical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pan American Silver

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pan American Silver are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Pan American displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sprott Physical and Pan American

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

The idea behind Sprott Physical Gold and Pan American Silver 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.