Correlation Between Sprott Gold and First Trust

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

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

Diversification Opportunities for Sprott Gold and First Trust

-0.37

Correlation Coefficient

Sprott Gold  First Trust

Very good diversification

The 3 months correlation between Sprott and First is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Gold Equity and First Trust Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Short and Sprott 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 Sprott Gold Equity are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Short has no effect on the direction of Sprott Gold i.e., Sprott Gold and First Trust go up and down completely randomly.

Pair Corralation between Sprott Gold and First Trust

Assuming the 90 days horizon Sprott Gold Equity is expected to under-perform the First Trust. In addition to that, Sprott Gold is 19.49 times more volatile than First Trust Short. It trades about -0.09 of its total potential returns per unit of risk. First Trust Short is currently generating about -0.16 per unit of volatility. If you would invest  1,814  in First Trust Short on October 9, 2024 and sell it today you would lose (11.00) from holding First Trust Short or give up 0.61% of portfolio value over 90 days.

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

Sprott Gold Equity  vs.  First Trust Short

Sprott Gold Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sprott Gold Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Sprott Gold is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

First Trust Short

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Short are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sprott Gold and First Trust

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

The idea behind Sprott Gold Equity and First Trust Short 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.