Correlation Between Vanguard Materials and Sprott Uranium

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

Diversification Opportunities for Vanguard Materials and Sprott Uranium

0.47

Correlation Coefficient

Vanguard Materials  Sprott Uranium

Very weak diversification

The 3 months correlation between Vanguard and Sprott is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Sprott Uranium Miners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Uranium Miners 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 Uranium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Uranium Miners has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Sprott Uranium go up and down completely randomly.

Pair Corralation between Vanguard Materials and Sprott Uranium

Considering the 90-day investment horizon Vanguard Materials Index is expected to generate 0.37 times more return on investment than Sprott Uranium. However, Vanguard Materials Index is 2.71 times less risky than Sprott Uranium. It trades about -0.13 of its potential returns per unit of risk. Sprott Uranium Miners is currently generating about -0.18 per unit of risk. If you would invest  21,152  in Vanguard Materials Index on November 28, 2024 and sell it today you would lose (1,516) from holding Vanguard Materials Index or give up 7.17% of portfolio value over 90 days.

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

Vanguard Materials Index  vs.  Sprott Uranium Miners

Vanguard Materials Index

Risk-Adjusted Performance

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 Uranium Miners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sprott Uranium Miners 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 March 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 Uranium

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

The idea behind Vanguard Materials Index and Sprott Uranium Miners 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.