Correlation Between Royal Gold and Sandstorm Gold

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

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

Diversification Opportunities for Royal Gold and Sandstorm Gold

0.9

Correlation Coefficient

Royal Gold  Sandstorm Gold

Almost no diversification

The 3 months correlation between Royal and Sandstorm is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Royal Gold and Sandstorm Gold Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandstorm Gold 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 Sandstorm Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandstorm Gold has no effect on the direction of Royal Gold i.e., Royal Gold and Sandstorm Gold go up and down completely randomly.

Pair Corralation between Royal Gold and Sandstorm Gold

Given the investment horizon of 90 days Royal Gold is expected to generate 1.48 times less return on investment than Sandstorm Gold. But when comparing it to its historical volatility, Royal Gold is 1.61 times less risky than Sandstorm Gold. It trades about 0.25 of its potential returns per unit of risk. Sandstorm Gold Ltd is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  554.00  in Sandstorm Gold Ltd on December 29, 2024 and sell it today you would earn a total of  203.00  from holding Sandstorm Gold Ltd or generate 36.64% 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.  Sandstorm Gold Ltd

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.

Sandstorm Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sandstorm Gold Ltd are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Sandstorm Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Gold and Sandstorm Gold

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

The idea behind Royal Gold and Sandstorm Gold Ltd 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.