Correlation Between Natural Gas and Palladium
Can any of the company-specific risk be diversified away by investing in both Natural Gas 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 Natural Gas and Palladium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Natural Gas and Palladium, you can compare the effects of market volatilities on Natural Gas 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 Natural Gas with a short position of Palladium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Gas and Palladium.
Diversification Opportunities for Natural Gas and Palladium
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Natural and Palladium is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas and Palladium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palladium 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 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 Natural Gas i.e., Natural Gas and Palladium go up and down completely randomly.
Pair Corralation between Natural Gas and Palladium
Assuming the 90 days horizon Natural Gas is expected to generate 1.8 times more return on investment than Palladium. However, Natural Gas is 1.8 times more volatile than Palladium. It trades about 0.09 of its potential returns per unit of risk. Palladium is currently generating about 0.03 per unit of risk. If you would invest 162.00 in Natural Gas on August 25, 2024 and sell it today you would earn a total of 151.00 from holding Natural Gas or generate 93.21% 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. Palladium
Performance |
| Timeline |
| Natural Gas |
| Palladium |
Natural Gas and Palladium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Natural Gas and Palladium
The main advantage of trading using opposite Natural Gas and Palladium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Gas 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.| Natural Gas vs. Soybean Meal Futures | Natural Gas vs. Coffee | Natural Gas vs. Sugar | Natural Gas vs. 10 Year T Note 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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