Correlation Between Brent Crude and Gold Futures
Can any of the company-specific risk be diversified away by investing in both Brent Crude and Gold Futures 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 Brent Crude and Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brent Crude Oil and Gold Futures, you can compare the effects of market volatilities on Brent Crude and Gold Futures 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 Brent Crude with a short position of Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brent Crude and Gold Futures.
Diversification Opportunities for Brent Crude and Gold Futures
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Brent and Gold is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and Brent Crude 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 Brent Crude Oil are associated (or correlated) with Gold Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Futures has no effect on the direction of Brent Crude i.e., Brent Crude and Gold Futures go up and down completely randomly.
Pair Corralation between Brent Crude and Gold Futures
Assuming the 90 days horizon Brent Crude Oil is expected to generate 1.14 times more return on investment than Gold Futures. However, Brent Crude is 1.14 times more volatile than Gold Futures. It trades about -0.02 of its potential returns per unit of risk. Gold Futures is currently generating about -0.1 per unit of risk. If you would invest 7,245 in Brent Crude Oil on September 1, 2024 and sell it today you would lose (61.00) from holding Brent Crude Oil or give up 0.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Brent Crude Oil vs. Gold Futures
Performance |
| Timeline |
| Brent Crude Oil |
| Gold Futures |
Brent Crude and Gold Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brent Crude and Gold Futures
The main advantage of trading using opposite Brent Crude and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brent Crude position performs unexpectedly, Gold Futures 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 Gold Futures will offset losses from the drop in Gold Futures' long position.| Brent Crude vs. Sugar | Brent Crude vs. 10 Year T Note Futures | Brent Crude vs. Nasdaq 100 | Brent Crude vs. Oat Futures |
| Gold Futures vs. E Mini SP 500 | Gold Futures vs. Silver Futures | Gold Futures vs. Palladium | Gold Futures vs. Mini Dow Jones |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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