Correlation Between Palladium and Crude Oil
Can any of the company-specific risk be diversified away by investing in both Palladium and Crude Oil 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 Palladium and Crude Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Palladium and Crude Oil, you can compare the effects of market volatilities on Palladium and Crude Oil 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 Palladium with a short position of Crude Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palladium and Crude Oil.
Diversification Opportunities for Palladium and Crude Oil
Very good diversification
The 3 months correlation between Palladium and Crude is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Palladium and Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crude Oil and Palladium 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 Palladium are associated (or correlated) with Crude Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crude Oil has no effect on the direction of Palladium i.e., Palladium and Crude Oil go up and down completely randomly.
Pair Corralation between Palladium and Crude Oil
Assuming the 90 days horizon Palladium is expected to generate 1.35 times more return on investment than Crude Oil. However, Palladium is 1.35 times more volatile than Crude Oil. It trades about 0.34 of its potential returns per unit of risk. Crude Oil is currently generating about 0.02 per unit of risk. 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 |
Palladium vs. Crude Oil
Performance |
| Timeline |
| Palladium |
| Crude Oil |
Palladium and Crude Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Palladium and Crude Oil
The main advantage of trading using opposite Palladium and Crude Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palladium position performs unexpectedly, Crude Oil 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 Crude Oil will offset losses from the drop in Crude Oil's long position.| Palladium vs. Feeder Cattle Futures | Palladium vs. Rough Rice Futures | Palladium vs. Coffee | Palladium vs. Soybean 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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