Correlation Between Davis New and Sprott Gold

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

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

Diversification Opportunities for Davis New and Sprott Gold

0.5

Correlation Coefficient

Davis New  Sprott Gold

Very weak diversification

The 3 months correlation between Davis and Sprott is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Davis New York 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 Davis New 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 Davis New York 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 Davis New i.e., Davis New and Sprott Gold go up and down completely randomly.

Pair Corralation between Davis New and Sprott Gold

Assuming the 90 days horizon Davis New is expected to generate 5.81 times less return on investment than Sprott Gold. But when comparing it to its historical volatility, Davis New York is 1.74 times less risky than Sprott Gold. It trades about 0.07 of its potential returns per unit of risk. Sprott Gold Equity is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  5,103  in Sprott Gold Equity on December 28, 2024 and sell it today you would earn a total of  1,281  from holding Sprott Gold Equity or generate 25.1% return on investment over 90 days.

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

Davis New York  vs.  Sprott Gold Equity

Davis New York

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Davis New York are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davis New 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 18 (%) 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 Davis New and Sprott Gold

The main advantage of trading using opposite Davis New and Sprott Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis New 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 Davis New York 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.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.