Correlation Between Pan American and Royal Gold

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Can any of the company-specific risk be diversified away by investing in both Pan American and Royal Gold 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 Pan American and Royal Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pan American Silver and Royal Gold, you can compare the effects of market volatilities on Pan American and Royal Gold 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 Pan American with a short position of Royal Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pan American and Royal Gold.

Diversification Opportunities for Pan American and Royal Gold

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Pan and Royal is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Pan American Silver and Royal Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Gold and Pan American 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 Pan American Silver are associated (or correlated) with Royal Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Gold has no effect on the direction of Pan American i.e., Pan American and Royal Gold go up and down completely randomly.

Pair Corralation between Pan American and Royal Gold

Given the investment horizon of 90 days Pan American Silver is expected to generate 1.79 times more return on investment than Royal Gold. However, Pan American is 1.79 times more volatile than Royal Gold. It trades about 0.04 of its potential returns per unit of risk. Royal Gold is currently generating about 0.04 per unit of risk. If you would invest  2,178  in Pan American Silver on August 26, 2024 and sell it today you would earn a total of  80.00  from holding Pan American Silver or generate 3.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Pan American Silver  vs.  Royal Gold

 Performance 
       Timeline  
Pan American Silver 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Pan American Silver are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Pan American may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Royal Gold 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Royal Gold are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Royal Gold is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pan American and Royal Gold Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pan American and Royal Gold

The main advantage of trading using opposite Pan American and Royal Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pan American position performs unexpectedly, Royal Gold 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 Royal Gold will offset losses from the drop in Royal Gold's long position.
The idea behind Pan American Silver and Royal Gold 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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