Correlation Between Franco Nevada and Pan American

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

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

Diversification Opportunities for Franco Nevada and Pan American

0.96

Correlation Coefficient

Franco Nevada  Pan American

Almost no diversification

The 3 months correlation between Franco and Pan is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Franco Nevada and Pan American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan American Silver 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 Pan American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan American Silver has no effect on the direction of Franco Nevada i.e., Franco Nevada and Pan American go up and down completely randomly.

Pair Corralation between Franco Nevada and Pan American

Assuming the 90 days trading horizon Franco Nevada is expected to generate 0.6 times more return on investment than Pan American. However, Franco Nevada is 1.68 times less risky than Pan American. It trades about 0.31 of its potential returns per unit of risk. Pan American Silver is currently generating about 0.18 per unit of risk. 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

Franco Nevada  vs.  Pan American Silver

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.

Pan American Silver

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pan American Silver are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Pan American displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Franco Nevada and Pan American

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

The idea behind Franco Nevada and Pan American Silver 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..