Correlation Between Wheaton Precious and Franco Nevada

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

Diversification Opportunities for Wheaton Precious and Franco Nevada

0.72

Correlation Coefficient

Wheaton Precious  Franco Nevada

Poor diversification

The 3 months correlation between Wheaton and Franco is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Wheaton Precious Metals and Franco Nevada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franco Nevada 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 Franco Nevada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franco Nevada has no effect on the direction of Wheaton Precious i.e., Wheaton Precious and Franco Nevada go up and down completely randomly.

Pair Corralation between Wheaton Precious and Franco Nevada

Considering the 90-day investment horizon Wheaton Precious is expected to generate 1.24 times less return on investment than Franco Nevada. In addition to that, Wheaton Precious is 1.16 times more volatile than Franco Nevada. It trades about 0.1 of its total potential returns per unit of risk. Franco Nevada is currently generating about 0.15 per unit of volatility. If you would invest  12,226  in Franco Nevada on November 28, 2024 and sell it today you would earn a total of  1,673  from holding Franco Nevada or generate 13.68% return on investment over 90 days.

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

Wheaton Precious Metals  vs.  Franco Nevada

Wheaton Precious Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wheaton Precious Metals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Wheaton Precious may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Franco Nevada

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franco Nevada are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Franco Nevada showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wheaton Precious and Franco Nevada

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

The idea behind Wheaton Precious Metals and Franco Nevada 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.