Correlation Between First Majestic and Franco Nevada

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

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

Diversification Opportunities for First Majestic and Franco Nevada

0.66

Correlation Coefficient

First Majestic  Franco Nevada

Poor diversification

The 3 months correlation between First and Franco is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and Franco Nevada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franco Nevada and First Majestic 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 First Majestic Silver are associated (or correlated) with Franco Nevada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franco Nevada has no effect on the direction of First Majestic i.e., First Majestic and Franco Nevada go up and down completely randomly.

Pair Corralation between First Majestic and Franco Nevada

Assuming the 90 days horizon First Majestic is expected to generate 1.1 times less return on investment than Franco Nevada. In addition to that, First Majestic is 2.59 times more volatile than Franco Nevada. It trades about 0.11 of its total potential returns per unit of risk. Franco Nevada is currently generating about 0.31 per unit of volatility. If you would invest  16,744  in Franco Nevada on December 29, 2024 and sell it today you would earn a total of  5,512  from holding Franco Nevada or generate 32.92% return on investment over 90 days.

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

First Majestic Silver  vs.  Franco Nevada

First Majestic Silver

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Majestic Silver are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, First Majestic displayed solid returns over the last few months and may actually be approaching a breakup point.

Franco Nevada

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Franco Nevada are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Franco Nevada displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Majestic and Franco Nevada

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

The idea behind First Majestic Silver and Franco Nevada 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.