Correlation Between Lumber Futures and Gold Futures
Can any of the company-specific risk be diversified away by investing in both Lumber Futures 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 Lumber Futures and Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumber Futures and Gold Futures, you can compare the effects of market volatilities on Lumber Futures 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 Lumber Futures with a short position of Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumber Futures and Gold Futures.
Diversification Opportunities for Lumber Futures and Gold Futures
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Lumber and Gold is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Lumber Futures and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and Lumber Futures 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 Lumber Futures 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 Lumber Futures i.e., Lumber Futures and Gold Futures go up and down completely randomly.
Pair Corralation between Lumber Futures and Gold Futures
Assuming the 90 days horizon Lumber Futures is expected to generate 1.73 times more return on investment than Gold Futures. However, Lumber Futures is 1.73 times more volatile than Gold Futures. It trades about 0.16 of its potential returns per unit of risk. Gold Futures is currently generating about 0.09 per unit of risk. If you would invest 49,400 in Lumber Futures on August 31, 2024 and sell it today you would earn a total of 9,450 from holding Lumber Futures or generate 19.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lumber Futures vs. Gold Futures
Performance |
| Timeline |
| Lumber Futures |
| Gold Futures |
Lumber Futures and Gold Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumber Futures and Gold Futures
The main advantage of trading using opposite Lumber Futures and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumber Futures 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.| Lumber Futures vs. 30 Year Treasury | Lumber Futures vs. Palladium | Lumber Futures vs. Corn Futures | Lumber Futures vs. Gasoline RBOB |
| Gold Futures vs. US Dollar | Gold Futures vs. Cocoa | Gold Futures vs. Live Cattle Futures | Gold Futures vs. Palladium |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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