Correlation Between E Mini and Micro Gold
Can any of the company-specific risk be diversified away by investing in both E Mini and Micro Gold 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 E Mini and Micro Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between E Mini SP 500 and Micro Gold Futures, you can compare the effects of market volatilities on E Mini and Micro Gold 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 E Mini with a short position of Micro Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of E Mini and Micro Gold.
Diversification Opportunities for E Mini and Micro Gold
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ESUSD and Micro is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding E Mini SP 500 and Micro Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro Gold Futures and E Mini 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 E Mini SP 500 are associated (or correlated) with Micro Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Gold Futures has no effect on the direction of E Mini i.e., E Mini and Micro Gold go up and down completely randomly.
Pair Corralation between E Mini and Micro Gold
Assuming the 90 days horizon E Mini SP 500 is expected to generate 0.88 times more return on investment than Micro Gold. However, E Mini SP 500 is 1.14 times less risky than Micro Gold. It trades about 0.1 of its potential returns per unit of risk. Micro Gold Futures is currently generating about 0.09 per unit of risk. If you would invest 396,575 in E Mini SP 500 on August 29, 2024 and sell it today you would earn a total of 204,925 from holding E Mini SP 500 or generate 51.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
E Mini SP 500 vs. Micro Gold Futures
Performance |
| Timeline |
| E Mini SP |
| Micro Gold Futures |
E Mini and Micro Gold Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with E Mini and Micro Gold
The main advantage of trading using opposite E Mini and Micro Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E Mini position performs unexpectedly, Micro Gold 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 Micro Gold will offset losses from the drop in Micro Gold's long position.The idea behind E Mini SP 500 and Micro Gold Futures 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.| Micro Gold vs. Gold Futures | Micro Gold vs. Soybean Meal Futures | Micro Gold vs. Coffee | Micro Gold vs. Sugar |
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 Valuation module to check real value of public entities based on technical and fundamental data.
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