Correlation Between Natural Gas and Gold Futures
Can any of the company-specific risk be diversified away by investing in both Natural Gas 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 Natural Gas and Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Natural Gas and Gold Futures, you can compare the effects of market volatilities on Natural Gas 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 Natural Gas with a short position of Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Gas and Gold Futures.
Diversification Opportunities for Natural Gas and Gold Futures
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Natural and Gold is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and Natural Gas 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 Natural Gas 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 Natural Gas i.e., Natural Gas and Gold Futures go up and down completely randomly.
Pair Corralation between Natural Gas and Gold Futures
Assuming the 90 days horizon Natural Gas is expected to under-perform the Gold Futures. In addition to that, Natural Gas is 5.54 times more volatile than Gold Futures. It trades about -0.05 of its total potential returns per unit of risk. Gold Futures is currently generating about 0.38 per unit of volatility. If you would invest 267,240 in Gold Futures on November 9, 2024 and sell it today you would earn a total of 20,710 from holding Gold Futures or generate 7.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Natural Gas vs. Gold Futures
Performance |
| Timeline |
| Natural Gas |
| Gold Futures |
Natural Gas and Gold Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Natural Gas and Gold Futures
The main advantage of trading using opposite Natural Gas and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Gas 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.| Natural Gas vs. Micro E mini Russell | Natural Gas vs. Class III Milk | Natural Gas vs. Lumber Futures | Natural Gas vs. Five Year Treasury Note |
| Gold Futures vs. Oat Futures | Gold Futures vs. 30 Year Treasury | Gold Futures vs. Micro Gold Futures | Gold Futures vs. 2 Year T Note Futures |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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