Correlation Between Sprott Energy and Sprott Nickel

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

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

Diversification Opportunities for Sprott Energy and Sprott Nickel

0.4

Correlation Coefficient

Sprott Energy  Sprott Nickel

Very weak diversification

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

Pair Corralation between Sprott Energy and Sprott Nickel

Given the investment horizon of 90 days Sprott Energy Transition is expected to generate 1.43 times more return on investment than Sprott Nickel. However, Sprott Energy is 1.43 times more volatile than Sprott Nickel Miners. It trades about 0.05 of its potential returns per unit of risk. Sprott Nickel Miners is currently generating about -0.05 per unit of risk. If you would invest  1,559  in Sprott Energy Transition on September 16, 2024 and sell it today you would earn a total of  83.00  from holding Sprott Energy Transition or generate 5.32% return on investment over 90 days.

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

Sprott Energy Transition  vs.  Sprott Nickel Miners

Sprott Energy Transition

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Energy Transition are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Sprott Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sprott Nickel Miners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sprott Nickel Miners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Sprott Nickel is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Sprott Energy and Sprott Nickel

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

The idea behind Sprott Energy Transition and Sprott Nickel Miners 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.