Correlation Between Sprott Focus and SP 500

Can any of the company-specific risk be diversified away by investing in both Sprott Focus and SP 500 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 Sprott Focus and SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sprott Focus Trust and SP 500 MINI, you can compare the effects of market volatilities on Sprott Focus and SP 500 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 Sprott Focus with a short position of SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sprott Focus and SP 500.

Diversification Opportunities for Sprott Focus and SP 500

0.69

Correlation Coefficient

Sprott Focus  SP 500

Poor diversification

The 3 months correlation between Sprott and XSP is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Focus Trust and SP 500 MINI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 MINI and Sprott Focus 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 Sprott Focus Trust are associated (or correlated) with SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 MINI has no effect on the direction of Sprott Focus i.e., Sprott Focus and SP 500 go up and down completely randomly.

Pair Corralation between Sprott Focus and SP 500

Given the investment horizon of 90 days Sprott Focus is expected to generate 1.88 times less return on investment than SP 500. In addition to that, Sprott Focus is 1.17 times more volatile than SP 500 MINI. It trades about 0.05 of its total potential returns per unit of risk. SP 500 MINI is currently generating about 0.11 per unit of volatility. If you would invest  44,116  in SP 500 MINI on December 7, 2024 and sell it today you would earn a total of  13,586  from holding SP 500 MINI or generate 30.8% return on investment over 90 days.

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

Sprott Focus Trust  vs.  SP 500 MINI

Pair Trading with Sprott Focus and SP 500

The main advantage of trading using opposite Sprott Focus and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sprott Focus position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.

The idea behind Sprott Focus Trust and SP 500 MINI 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.