Correlation Between Crude Oil and Palladium
Can any of the company-specific risk be diversified away by investing in both Crude Oil and Palladium 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 Crude Oil and Palladium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Crude Oil and Palladium, you can compare the effects of market volatilities on Crude Oil and Palladium 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 Crude Oil with a short position of Palladium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crude Oil and Palladium.
Diversification Opportunities for Crude Oil and Palladium
Very good diversification
The 3 months correlation between Crude and Palladium is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Crude Oil and Palladium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palladium and Crude Oil 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 Crude Oil are associated (or correlated) with Palladium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palladium has no effect on the direction of Crude Oil i.e., Crude Oil and Palladium go up and down completely randomly.
Pair Corralation between Crude Oil and Palladium
Assuming the 90 days horizon Crude Oil is expected to generate 23.28 times less return on investment than Palladium. But when comparing it to its historical volatility, Crude Oil is 1.35 times less risky than Palladium. It trades about 0.02 of its potential returns per unit of risk. Palladium is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 91,210 in Palladium on November 3, 2024 and sell it today you would earn a total of 15,640 from holding Palladium or generate 17.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Crude Oil vs. Palladium
Performance |
| Timeline |
| Crude Oil |
| Palladium |
Crude Oil and Palladium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Crude Oil and Palladium
The main advantage of trading using opposite Crude Oil and Palladium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crude Oil position performs unexpectedly, Palladium 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 Palladium will offset losses from the drop in Palladium's long position.| Crude Oil vs. 10 Year T Note Futures | Crude Oil vs. Nasdaq 100 | Crude Oil vs. Oat Futures | Crude Oil vs. Wheat Futures |
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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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