Correlation Between Sprott Physical and Purpose Gold

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

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

Diversification Opportunities for Sprott Physical and Purpose Gold

0.81

Correlation Coefficient

Sprott Physical  Purpose Gold

Very poor diversification

The 3 months correlation between Sprott and Purpose is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Physical Gold and Purpose Gold Bullion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purpose Gold Bullion and Sprott Physical 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 Physical Gold are associated (or correlated) with Purpose Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purpose Gold Bullion has no effect on the direction of Sprott Physical i.e., Sprott Physical and Purpose Gold go up and down completely randomly.

Pair Corralation between Sprott Physical and Purpose Gold

Assuming the 90 days trading horizon Sprott Physical Gold is expected to generate 1.04 times more return on investment than Purpose Gold. However, Sprott Physical is 1.04 times more volatile than Purpose Gold Bullion. It trades about 0.32 of its potential returns per unit of risk. Purpose Gold Bullion is currently generating about 0.32 per unit of risk. If you would invest  2,873  in Sprott Physical Gold on December 30, 2024 and sell it today you would earn a total of  540.00  from holding Sprott Physical Gold or generate 18.8% return on investment over 90 days.

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

Sprott Physical Gold  vs.  Purpose Gold Bullion

Sprott Physical Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Physical Gold are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Sprott Physical displayed solid returns over the last few months and may actually be approaching a breakup point.

Purpose Gold Bullion

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Purpose Gold Bullion are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Purpose Gold displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sprott Physical and Purpose Gold

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

The idea behind Sprott Physical Gold and Purpose Gold Bullion 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.