Correlation Between Vanguard Materials and Sprott Copper
Can any of the company-specific risk be diversified away by investing in both Vanguard Materials and Sprott Copper 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 Copper 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 Copper Miners, you can compare the effects of market volatilities on Vanguard Materials and Sprott Copper 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 Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and Sprott Copper.
Diversification Opportunities for Vanguard Materials and Sprott Copper
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Sprott is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Sprott Copper Miners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Copper 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 Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Copper Miners has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Sprott Copper go up and down completely randomly.
Pair Corralation between Vanguard Materials and Sprott Copper
Considering the 90-day investment horizon Vanguard Materials Index is expected to generate 0.43 times more return on investment than Sprott Copper. However, Vanguard Materials Index is 2.35 times less risky than Sprott Copper. It trades about 0.19 of its potential returns per unit of risk. Sprott Copper Miners is currently generating about -0.05 per unit of risk. If you would invest 20,580 in Vanguard Materials Index on September 1, 2024 and sell it today you would earn a total of 665.00 from holding Vanguard Materials Index or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Vanguard Materials Index vs. Sprott Copper Miners
Performance |
| Timeline |
| Vanguard Materials Index |
| Sprott Copper Miners |
Vanguard Materials and Sprott Copper Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Materials and Sprott Copper
The main advantage of trading using opposite Vanguard Materials and Sprott Copper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials position performs unexpectedly, Sprott Copper 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 Copper will offset losses from the drop in Sprott Copper's long position.The idea behind Vanguard Materials Index and Sprott Copper 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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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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