Correlation Between Franco Nevada and 2G ENERGY

Can any of the company-specific risk be diversified away by investing in both Franco Nevada and 2G ENERGY 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 Franco Nevada and 2G ENERGY into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Franco Nevada and 2G ENERGY , you can compare the effects of market volatilities on Franco Nevada and 2G ENERGY 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 Franco Nevada with a short position of 2G ENERGY. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franco Nevada and 2G ENERGY.

Diversification Opportunities for Franco Nevada and 2G ENERGY

0.42

Correlation Coefficient

Franco Nevada  2G ENERGY

Very weak diversification

The 3 months correlation between Franco and 2GB is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Franco Nevada and 2G ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2G ENERGY and Franco Nevada 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 Franco Nevada are associated (or correlated) with 2G ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2G ENERGY has no effect on the direction of Franco Nevada i.e., Franco Nevada and 2G ENERGY go up and down completely randomly.

Pair Corralation between Franco Nevada and 2G ENERGY

Assuming the 90 days horizon Franco Nevada is expected to generate 0.6 times more return on investment than 2G ENERGY. However, Franco Nevada is 1.66 times less risky than 2G ENERGY. It trades about 0.14 of its potential returns per unit of risk. 2G ENERGY is currently generating about 0.06 per unit of risk. If you would invest  11,576  in Franco Nevada on November 28, 2024 and sell it today you would earn a total of  1,614  from holding Franco Nevada or generate 13.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Franco Nevada  vs.  2G ENERGY

Franco Nevada

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franco Nevada are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Franco Nevada reported solid returns over the last few months and may actually be approaching a breakup point.

2G ENERGY

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in 2G ENERGY are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, 2G ENERGY may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Franco Nevada and 2G ENERGY

The main advantage of trading using opposite Franco Nevada and 2G ENERGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franco Nevada position performs unexpectedly, 2G ENERGY 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 2G ENERGY will offset losses from the drop in 2G ENERGY's long position.

The idea behind Franco Nevada and 2G ENERGY 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.