Correlation Between Simplify Volatility and Sprott Focus

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

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

Diversification Opportunities for Simplify Volatility and Sprott Focus

0.68

Correlation Coefficient

Simplify Volatility  Sprott Focus

Poor diversification

The 3 months correlation between Simplify and Sprott is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Simplify Volatility Premium and Sprott Focus Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Focus Trust and Simplify Volatility 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 Simplify Volatility Premium are associated (or correlated) with Sprott Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Focus Trust has no effect on the direction of Simplify Volatility i.e., Simplify Volatility and Sprott Focus go up and down completely randomly.

Pair Corralation between Simplify Volatility and Sprott Focus

Given the investment horizon of 90 days Simplify Volatility Premium is expected to generate 1.42 times more return on investment than Sprott Focus. However, Simplify Volatility is 1.42 times more volatile than Sprott Focus Trust. It trades about -0.03 of its potential returns per unit of risk. Sprott Focus Trust is currently generating about -0.11 per unit of risk. If you would invest  2,114  in Simplify Volatility Premium on November 28, 2024 and sell it today you would lose (46.00) from holding Simplify Volatility Premium or give up 2.18% of portfolio value over 90 days.

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

Simplify Volatility Premium  vs.  Sprott Focus Trust

Simplify Volatility

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simplify Volatility Premium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Simplify Volatility is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Sprott Focus Trust

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Simplify Volatility and Sprott Focus

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

The idea behind Simplify Volatility Premium and Sprott Focus Trust 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.