Correlation Between First Trust and Sprott Junior

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

By analyzing existing cross correlation between First Trust Water and Sprott Junior Uranium, you can compare the effects of market volatilities on First Trust and Sprott Junior 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 Trust with a short position of Sprott Junior. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Sprott Junior.

Diversification Opportunities for First Trust and Sprott Junior

0.63

Correlation Coefficient

First Trust  Sprott Junior

Poor diversification

The 3 months correlation between First and Sprott is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Water and Sprott Junior Uranium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Junior Uranium and First Trust 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 Trust Water are associated (or correlated) with Sprott Junior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Junior Uranium has no effect on the direction of First Trust i.e., First Trust and Sprott Junior go up and down completely randomly.

Pair Corralation between First Trust and Sprott Junior

Considering the 90-day investment horizon First Trust is expected to generate 1.09 times less return on investment than Sprott Junior. But when comparing it to its historical volatility, First Trust Water is 3.06 times less risky than Sprott Junior. It trades about 0.19 of its potential returns per unit of risk. Sprott Junior Uranium is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,226  in Sprott Junior Uranium on September 4, 2024 and sell it today you would earn a total of  73.00  from holding Sprott Junior Uranium or generate 3.28% return on investment over 90 days.

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

First Trust Water  vs.  Sprott Junior Uranium

First Trust Water

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Water are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Sprott Junior Uranium

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Junior Uranium are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Sprott Junior revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Sprott Junior

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

The idea behind First Trust Water and Sprott Junior Uranium 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.