Correlation Between Canadian Natural and Sprott

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

By analyzing existing cross correlation between Canadian Natural Resources and Sprott Inc, you can compare the effects of market volatilities on Canadian Natural and Sprott 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 Canadian Natural with a short position of Sprott. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Natural and Sprott.

Diversification Opportunities for Canadian Natural and Sprott

-0.09

Correlation Coefficient

Canadian Natural  Sprott

Good diversification

The 3 months correlation between Canadian and Sprott is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Sprott Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Inc and Canadian Natural 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 Canadian Natural Resources are associated (or correlated) with Sprott. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Inc has no effect on the direction of Canadian Natural i.e., Canadian Natural and Sprott go up and down completely randomly.

Pair Corralation between Canadian Natural and Sprott

Assuming the 90 days trading horizon Canadian Natural Resources is expected to under-perform the Sprott. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Natural Resources is 1.11 times less risky than Sprott. The stock trades about -0.13 of its potential returns per unit of risk. The Sprott Inc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,141  in Sprott Inc on December 2, 2024 and sell it today you would lose (4.00) from holding Sprott Inc or give up 0.07% of portfolio value over 90 days.

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

Canadian Natural Resources  vs.  Sprott Inc

Canadian Natural Res

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Sprott Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sprott Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Sprott is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Canadian Natural and Sprott

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

The idea behind Canadian Natural Resources and Sprott Inc 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.