Correlation Between Royal Gold and Wheaton Precious

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

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

Diversification Opportunities for Royal Gold and Wheaton Precious

0.96

Correlation Coefficient

Royal Gold  Wheaton Precious

Almost no diversification

The 3 months correlation between Royal and Wheaton is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Royal Gold and Wheaton Precious Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wheaton Precious Metals and Royal 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 Royal Gold are associated (or correlated) with Wheaton Precious. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wheaton Precious Metals has no effect on the direction of Royal Gold i.e., Royal Gold and Wheaton Precious go up and down completely randomly.

Pair Corralation between Royal Gold and Wheaton Precious

Given the investment horizon of 90 days Royal Gold is expected to generate 0.97 times more return on investment than Wheaton Precious. However, Royal Gold is 1.03 times less risky than Wheaton Precious. It trades about 0.44 of its potential returns per unit of risk. Wheaton Precious Metals is currently generating about 0.4 per unit of risk. If you would invest  11,882  in Royal Gold on February 22, 2024 and sell it today you would earn a total of  1,549  from holding Royal Gold or generate 13.04% return on investment over 90 days.

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

Royal Gold  vs.  Wheaton Precious Metals

Royal Gold

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Gold are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Royal Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Wheaton Precious Metals

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Wheaton Precious Metals are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Wheaton Precious displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Gold and Wheaton Precious

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

The idea behind Royal Gold and Wheaton Precious Metals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.