Correlation Between NextEra and Sandstorm Gold

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

By analyzing existing cross correlation between NextEra Energy Operating and Sandstorm Gold Ltd, you can compare the effects of market volatilities on NextEra and Sandstorm Gold 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 NextEra with a short position of Sandstorm Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of NextEra and Sandstorm Gold.

Diversification Opportunities for NextEra and Sandstorm Gold

0.43

Correlation Coefficient

NextEra  Sandstorm Gold

Very weak diversification

The 3 months correlation between NextEra and Sandstorm is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding NextEra Energy Operating and Sandstorm Gold Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandstorm Gold and NextEra 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 NextEra Energy Operating are associated (or correlated) with Sandstorm Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandstorm Gold has no effect on the direction of NextEra i.e., NextEra and Sandstorm Gold go up and down completely randomly.

Pair Corralation between NextEra and Sandstorm Gold

Assuming the 90 days trading horizon NextEra Energy Operating is expected to generate 0.26 times more return on investment than Sandstorm Gold. However, NextEra Energy Operating is 3.86 times less risky than Sandstorm Gold. It trades about -0.04 of its potential returns per unit of risk. Sandstorm Gold Ltd is currently generating about -0.03 per unit of risk. If you would invest  9,741  in NextEra Energy Operating on September 12, 2024 and sell it today you would lose (146.00) from holding NextEra Energy Operating or give up 1.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.19%
Values	Daily Returns

NextEra Energy Operating  vs.  Sandstorm Gold Ltd

NextEra Energy Operating

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextEra Energy Operating has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NextEra is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Sandstorm Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandstorm Gold Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Sandstorm Gold is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NextEra and Sandstorm Gold

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

The idea behind NextEra Energy Operating and Sandstorm Gold Ltd 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.