Correlation Between Royal Gold and Franco Nevada

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

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

Diversification Opportunities for Royal Gold and Franco Nevada

0.96

Correlation Coefficient

Royal Gold  Franco Nevada

Almost no diversification

The 3 months correlation between Royal and Franco is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Royal Gold and Franco Nevada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franco Nevada and Royal Gold 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 Royal Gold are associated (or correlated) with Franco Nevada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franco Nevada has no effect on the direction of Royal Gold i.e., Royal Gold and Franco Nevada go up and down completely randomly.

Pair Corralation between Royal Gold and Franco Nevada

Given the investment horizon of 90 days Royal Gold is expected to generate 1.4 times less return on investment than Franco Nevada. But when comparing it to its historical volatility, Royal Gold is 1.03 times less risky than Franco Nevada. It trades about 0.25 of its potential returns per unit of risk. Franco Nevada is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  11,666  in Franco Nevada on December 28, 2024 and sell it today you would earn a total of  4,058  from holding Franco Nevada or generate 34.78% return on investment over 90 days.

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

Royal Gold  vs.  Franco Nevada

Royal Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Gold are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Royal Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Franco Nevada

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Franco Nevada are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Franco Nevada showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Gold and Franco Nevada

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

The idea behind Royal Gold and Franco Nevada 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 Stocks Directory module to find actively traded stocks across global markets.