Correlation Between Sandstorm Gold and West Red

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

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

Diversification Opportunities for Sandstorm Gold and West Red

0.4

Correlation Coefficient

Sandstorm Gold  West Red

Very weak diversification

The 3 months correlation between Sandstorm and West is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Sandstorm Gold Ltd and West Red Lake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Red Lake and Sandstorm 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 Sandstorm Gold Ltd are associated (or correlated) with West Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Red Lake has no effect on the direction of Sandstorm Gold i.e., Sandstorm Gold and West Red go up and down completely randomly.

Pair Corralation between Sandstorm Gold and West Red

Given the investment horizon of 90 days Sandstorm Gold is expected to generate 7.78 times less return on investment than West Red. But when comparing it to its historical volatility, Sandstorm Gold Ltd is 2.26 times less risky than West Red. It trades about 0.02 of its potential returns per unit of risk. West Red Lake is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  40.00  in West Red Lake on October 11, 2024 and sell it today you would earn a total of  2.00  from holding West Red Lake or generate 5.0% return on investment over 90 days.

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

Sandstorm Gold Ltd  vs.  West Red Lake

Sandstorm Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandstorm Gold Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Sandstorm Gold is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

West Red Lake

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Red Lake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Sandstorm Gold and West Red

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

The idea behind Sandstorm Gold Ltd and West Red Lake 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.