Correlation Between Sprott Nickel and Sprott Energy

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

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

Diversification Opportunities for Sprott Nickel and Sprott Energy

0.51

Correlation Coefficient

Sprott Nickel  Sprott Energy

Very weak diversification

The 3 months correlation between Sprott and Sprott is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Nickel Miners and Sprott Energy Transition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Energy Transition and Sprott Nickel 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 Nickel Miners are associated (or correlated) with Sprott Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Energy Transition has no effect on the direction of Sprott Nickel i.e., Sprott Nickel and Sprott Energy go up and down completely randomly.

Pair Corralation between Sprott Nickel and Sprott Energy

Given the investment horizon of 90 days Sprott Nickel Miners is expected to under-perform the Sprott Energy. But the etf apears to be less risky and, when comparing its historical volatility, Sprott Nickel Miners is 1.14 times less risky than Sprott Energy. The etf trades about -0.13 of its potential returns per unit of risk. The Sprott Energy Transition is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,535  in Sprott Energy Transition on December 27, 2024 and sell it today you would lose (35.00) from holding Sprott Energy Transition or give up 2.28% of portfolio value over 90 days.

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

Sprott Nickel Miners  vs.  Sprott Energy Transition

Sprott Nickel Miners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sprott Nickel Miners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Etf's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

Sprott Energy Transition

Risk-Adjusted Performance

Weak

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

Pair Trading with Sprott Nickel and Sprott Energy

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

The idea behind Sprott Nickel Miners and Sprott Energy Transition 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.