Correlation Between Sprott Physical and Invesco Agriculture

Can any of the company-specific risk be diversified away by investing in both Sprott Physical and Invesco Agriculture 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 Invesco Agriculture 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 Invesco Agriculture Commodity, you can compare the effects of market volatilities on Sprott Physical and Invesco Agriculture 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 Invesco Agriculture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sprott Physical and Invesco Agriculture.

Diversification Opportunities for Sprott Physical and Invesco Agriculture

-0.45

Correlation Coefficient

Sprott Physical  Invesco Agriculture

Very good diversification

The 3 months correlation between Sprott and Invesco is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Physical Gold and Invesco Agriculture Commodity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Agriculture 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 Invesco Agriculture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Agriculture has no effect on the direction of Sprott Physical i.e., Sprott Physical and Invesco Agriculture go up and down completely randomly.

Pair Corralation between Sprott Physical and Invesco Agriculture

Given the investment horizon of 90 days Sprott Physical Gold is expected to under-perform the Invesco Agriculture. In addition to that, Sprott Physical is 1.61 times more volatile than Invesco Agriculture Commodity. It trades about -0.12 of its total potential returns per unit of risk. Invesco Agriculture Commodity is currently generating about 0.25 per unit of volatility. If you would invest  3,837  in Invesco Agriculture Commodity on September 23, 2024 and sell it today you would earn a total of  143.00  from holding Invesco Agriculture Commodity or generate 3.73% return on investment over 90 days.

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

Sprott Physical Gold  vs.  Invesco Agriculture Commodity

Sprott Physical Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sprott Physical Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sprott Physical is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco Agriculture

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Agriculture Commodity are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Invesco Agriculture is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sprott Physical and Invesco Agriculture

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

The idea behind Sprott Physical Gold and Invesco Agriculture Commodity 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.