Correlation Between Sprott Energy and Invesco SP

Can any of the company-specific risk be diversified away by investing in both Sprott Energy and Invesco SP 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 Invesco SP 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 Invesco SP 500, you can compare the effects of market volatilities on Sprott Energy and Invesco SP 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 Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sprott Energy and Invesco SP.

Diversification Opportunities for Sprott Energy and Invesco SP

0.6

Correlation Coefficient

Sprott Energy  Invesco SP

Poor diversification

The 3 months correlation between Sprott and Invesco is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Energy Transition and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of Sprott Energy i.e., Sprott Energy and Invesco SP go up and down completely randomly.

Pair Corralation between Sprott Energy and Invesco SP

Given the investment horizon of 90 days Sprott Energy Transition is expected to generate 2.04 times more return on investment than Invesco SP. However, Sprott Energy is 2.04 times more volatile than Invesco SP 500. It trades about 0.02 of its potential returns per unit of risk. Invesco SP 500 is currently generating about -0.01 per unit of risk. If you would invest  1,535  in Sprott Energy Transition on December 27, 2024 and sell it today you would earn a total of  14.00  from holding Sprott Energy Transition or generate 0.91% return on investment over 90 days.

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

Sprott Energy Transition  vs.  Invesco SP 500

Sprott Energy Transition

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Energy Transition are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Sprott Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Invesco SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Invesco SP is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Sprott Energy and Invesco SP

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

The idea behind Sprott Energy Transition and Invesco SP 500 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.