Correlation Between Wheaton Precious and Power Metal

Can any of the company-specific risk be diversified away by investing in both Wheaton Precious and Power Metal 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 Wheaton Precious and Power Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wheaton Precious Metals and Power Metal Resources, you can compare the effects of market volatilities on Wheaton Precious and Power Metal 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 Wheaton Precious with a short position of Power Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wheaton Precious and Power Metal.

Diversification Opportunities for Wheaton Precious and Power Metal

0.21

Correlation Coefficient

Wheaton Precious  Power Metal

Modest diversification

The 3 months correlation between Wheaton and Power is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Wheaton Precious Metals and Power Metal Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Metal Resources and Wheaton Precious 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 Wheaton Precious Metals are associated (or correlated) with Power Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Metal Resources has no effect on the direction of Wheaton Precious i.e., Wheaton Precious and Power Metal go up and down completely randomly.

Pair Corralation between Wheaton Precious and Power Metal

Assuming the 90 days trading horizon Wheaton Precious Metals is expected to generate 0.8 times more return on investment than Power Metal. However, Wheaton Precious Metals is 1.25 times less risky than Power Metal. It trades about 0.06 of its potential returns per unit of risk. Power Metal Resources is currently generating about -0.07 per unit of risk. If you would invest  485,000  in Wheaton Precious Metals on December 1, 2024 and sell it today you would earn a total of  29,000  from holding Wheaton Precious Metals or generate 5.98% return on investment over 90 days.

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

Wheaton Precious Metals  vs.  Power Metal Resources

Wheaton Precious Metals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wheaton Precious Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Wheaton Precious may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Power Metal Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power Metal Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Wheaton Precious and Power Metal

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

The idea behind Wheaton Precious Metals and Power Metal 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.