Correlation Between Goldman Sachs and Sprott Gold

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

By analyzing existing cross correlation between Goldman Sachs Clean and Sprott Gold Equity, you can compare the effects of market volatilities on Goldman Sachs and Sprott Gold 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 Goldman Sachs with a short position of Sprott Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goldman Sachs and Sprott Gold.

Diversification Opportunities for Goldman Sachs and Sprott Gold

0.48

Correlation Coefficient

Goldman Sachs  Sprott Gold

Very weak diversification

The 3 months correlation between Goldman and Sprott is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs Clean and Sprott Gold Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Gold Equity and Goldman Sachs 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 Goldman Sachs Clean are associated (or correlated) with Sprott Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Gold Equity has no effect on the direction of Goldman Sachs i.e., Goldman Sachs and Sprott Gold go up and down completely randomly.

Pair Corralation between Goldman Sachs and Sprott Gold

Assuming the 90 days horizon Goldman Sachs is expected to generate 5.07 times less return on investment than Sprott Gold. But when comparing it to its historical volatility, Goldman Sachs Clean is 1.67 times less risky than Sprott Gold. It trades about 0.08 of its potential returns per unit of risk. Sprott Gold Equity is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  5,103  in Sprott Gold Equity on December 29, 2024 and sell it today you would earn a total of  1,401  from holding Sprott Gold Equity or generate 27.45% return on investment over 90 days.

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

Goldman Sachs Clean  vs.  Sprott Gold Equity

Goldman Sachs Clean

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Clean are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Goldman Sachs is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sprott Gold Equity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Gold Equity are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly sluggish essential indicators, Sprott Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Goldman Sachs and Sprott Gold

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

The idea behind Goldman Sachs Clean and Sprott Gold Equity 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.