Correlation Between Materials Select and Sprott Uranium

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

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

Diversification Opportunities for Materials Select and Sprott Uranium

0.73

Correlation Coefficient

Materials Select  Sprott Uranium

Poor diversification

The 3 months correlation between Materials and Sprott is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector 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 Materials Select 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 Materials Select Sector 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 Materials Select i.e., Materials Select and Sprott Uranium go up and down completely randomly.

Pair Corralation between Materials Select and Sprott Uranium

Considering the 90-day investment horizon Materials Select is expected to generate 6.46 times less return on investment than Sprott Uranium. But when comparing it to its historical volatility, Materials Select Sector is 2.94 times less risky than Sprott Uranium. It trades about 0.07 of its potential returns per unit of risk. Sprott Uranium Miners is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,902  in Sprott Uranium Miners on September 1, 2024 and sell it today you would earn a total of  898.00  from holding Sprott Uranium Miners or generate 23.01% return on investment over 90 days.

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

Materials Select Sector  vs.  Sprott Uranium Miners

Materials Select Sector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Select Sector are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Sprott Uranium Miners

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Materials Select and Sprott Uranium

The main advantage of trading using opposite Materials Select and Sprott Uranium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select 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 Materials Select Sector 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.