Correlation Between Vanguard Materials and Sprott Energy

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

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

Diversification Opportunities for Vanguard Materials and Sprott Energy

0.93

Correlation Coefficient

Vanguard Materials  Sprott Energy

Almost no diversification

The 3 months correlation between Vanguard and Sprott is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Sprott Energy Transition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Energy Transition and Vanguard Materials 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 Vanguard Materials Index are associated (or correlated) with Sprott Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Energy Transition has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Sprott Energy go up and down completely randomly.

Pair Corralation between Vanguard Materials and Sprott Energy

Considering the 90-day investment horizon Vanguard Materials Index is expected to generate 0.54 times more return on investment than Sprott Energy. However, Vanguard Materials Index is 1.86 times less risky than Sprott Energy. It trades about -0.11 of its potential returns per unit of risk. Sprott Energy Transition is currently generating about -0.14 per unit of risk. If you would invest  21,051  in Vanguard Materials Index on October 22, 2024 and sell it today you would lose (1,374) from holding Vanguard Materials Index or give up 6.53% of portfolio value over 90 days.

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

Vanguard Materials Index  vs.  Sprott Energy Transition

Vanguard Materials Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Materials Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Sprott Energy Transition

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Materials and Sprott Energy

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

The idea behind Vanguard Materials Index and Sprott Energy Transition 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.