Correlation Between Sprott Physical and Wheaton Precious

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

Diversification Opportunities for Sprott Physical and Wheaton Precious

0.89

Correlation Coefficient

Sprott Physical  Wheaton Precious

Very poor diversification

The 3 months correlation between Sprott and Wheaton is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Physical Gold and Wheaton Precious Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wheaton Precious Metals 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 Wheaton Precious. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wheaton Precious Metals has no effect on the direction of Sprott Physical i.e., Sprott Physical and Wheaton Precious go up and down completely randomly.

Pair Corralation between Sprott Physical and Wheaton Precious

Assuming the 90 days trading horizon Sprott Physical Gold is expected to generate 0.51 times more return on investment than Wheaton Precious. However, Sprott Physical Gold is 1.96 times less risky than Wheaton Precious. It trades about 0.15 of its potential returns per unit of risk. Wheaton Precious Metals is currently generating about 0.07 per unit of risk. If you would invest  2,629  in Sprott Physical Gold on September 2, 2024 and sell it today you would earn a total of  231.00  from holding Sprott Physical Gold or generate 8.79% return on investment over 90 days.

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

Sprott Physical Gold  vs.  Wheaton Precious Metals

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.

Wheaton Precious Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wheaton Precious Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Wheaton Precious may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sprott Physical and Wheaton Precious

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

The idea behind Sprott Physical Gold and Wheaton Precious Metals 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.