Correlation Between Sandstorm Gold and Encore Wire

Can any of the company-specific risk be diversified away by investing in both Sandstorm Gold and Encore Wire 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 Sandstorm Gold and Encore Wire into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sandstorm Gold Ltd and Encore Wire, you can compare the effects of market volatilities on Sandstorm Gold and Encore Wire 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 Sandstorm Gold with a short position of Encore Wire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sandstorm Gold and Encore Wire.

Diversification Opportunities for Sandstorm Gold and Encore Wire

0.77

Correlation Coefficient

Sandstorm Gold  Encore Wire

Poor diversification

The 3 months correlation between Sandstorm and Encore is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sandstorm Gold Ltd and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and Sandstorm Gold 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 Sandstorm Gold Ltd are associated (or correlated) with Encore Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Wire has no effect on the direction of Sandstorm Gold i.e., Sandstorm Gold and Encore Wire go up and down completely randomly.

Pair Corralation between Sandstorm Gold and Encore Wire

Given the investment horizon of 90 days Sandstorm Gold is expected to generate 1.78 times less return on investment than Encore Wire. In addition to that, Sandstorm Gold is 1.05 times more volatile than Encore Wire. It trades about 0.08 of its total potential returns per unit of risk. Encore Wire is currently generating about 0.16 per unit of volatility. If you would invest  21,498  in Encore Wire on January 31, 2024 and sell it today you would earn a total of  6,805  from holding Encore Wire or generate 31.65% return on investment over 90 days.

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

Sandstorm Gold Ltd  vs.  Encore Wire

Sandstorm Gold

Risk-Adjusted Performance

11 of 100

OK

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

Encore Wire

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sandstorm Gold and Encore Wire

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

The idea behind Sandstorm Gold Ltd and Encore Wire 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.