Correlation Between Sandstorm Gold and Japan Tobacco

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

Diversification Opportunities for Sandstorm Gold and Japan Tobacco

-0.64

Correlation Coefficient

Sandstorm Gold  Japan Tobacco

Excellent diversification

The 3 months correlation between Sandstorm and Japan is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sandstorm Gold Ltd and Japan Tobacco ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco ADR 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 Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco ADR has no effect on the direction of Sandstorm Gold i.e., Sandstorm Gold and Japan Tobacco go up and down completely randomly.

Pair Corralation between Sandstorm Gold and Japan Tobacco

Given the investment horizon of 90 days Sandstorm Gold Ltd is expected to generate 1.73 times more return on investment than Japan Tobacco. However, Sandstorm Gold is 1.73 times more volatile than Japan Tobacco ADR. It trades about 0.07 of its potential returns per unit of risk. Japan Tobacco ADR is currently generating about -0.02 per unit of risk. If you would invest  885.00  in Sandstorm Gold Ltd on May 6, 2025 and sell it today you would earn a total of  76.50  from holding Sandstorm Gold Ltd or generate 8.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Sandstorm Gold Ltd  vs.  Japan Tobacco ADR

Sandstorm Gold

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sandstorm Gold Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Sandstorm Gold may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Japan Tobacco ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Tobacco ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sandstorm Gold and Japan Tobacco

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

The idea behind Sandstorm Gold Ltd and Japan Tobacco ADR 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.