Correlation Between Sandstorm Gold and NovaGold Resources

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

Diversification Opportunities for Sandstorm Gold and NovaGold Resources

-0.45

Correlation Coefficient

Sandstorm Gold  NovaGold Resources

Very good diversification

The 3 months correlation between Sandstorm and NovaGold is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sandstorm Gold Ltd and NovaGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaGold Resources 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 NovaGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NovaGold Resources has no effect on the direction of Sandstorm Gold i.e., Sandstorm Gold and NovaGold Resources go up and down completely randomly.

Pair Corralation between Sandstorm Gold and NovaGold Resources

Assuming the 90 days trading horizon Sandstorm Gold Ltd is expected to generate 0.7 times more return on investment than NovaGold Resources. However, Sandstorm Gold Ltd is 1.43 times less risky than NovaGold Resources. It trades about 0.09 of its potential returns per unit of risk. NovaGold Resources is currently generating about -0.09 per unit of risk. If you would invest  811.00  in Sandstorm Gold Ltd on November 29, 2024 and sell it today you would earn a total of  91.00  from holding Sandstorm Gold Ltd or generate 11.22% return on investment over 90 days.

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

Sandstorm Gold Ltd  vs.  NovaGold Resources

Sandstorm Gold

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sandstorm Gold Ltd are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Sandstorm Gold may actually be approaching a critical reversion point that can send shares even higher in March 2025.

NovaGold Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Sandstorm Gold and NovaGold Resources

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

The idea behind Sandstorm Gold Ltd and NovaGold Resources 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.