Correlation Between Palladium and Gold Futures
Can any of the company-specific risk be diversified away by investing in both Palladium 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 Palladium and Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Palladium and Gold Futures, you can compare the effects of market volatilities on Palladium 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 Palladium with a short position of Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palladium and Gold Futures.
Diversification Opportunities for Palladium and Gold Futures
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Palladium and Gold is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Palladium and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures 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 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 Palladium i.e., Palladium and Gold Futures go up and down completely randomly.
Pair Corralation between Palladium and Gold Futures
Assuming the 90 days horizon Palladium is expected to under-perform the Gold Futures. In addition to that, Palladium is 2.87 times more volatile than Gold Futures. It trades about -0.02 of its total potential returns per unit of risk. Gold Futures is currently generating about 0.09 per unit of volatility. If you would invest 187,950 in Gold Futures on August 27, 2024 and sell it today you would earn a total of 83,270 from holding Gold Futures or generate 44.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Palladium vs. Gold Futures
Performance |
| Timeline |
| Palladium |
| Gold Futures |
Palladium and Gold Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Palladium and Gold Futures
The main advantage of trading using opposite Palladium and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palladium 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.| Palladium vs. Natural Gas | Palladium vs. Nasdaq 100 | Palladium vs. Gasoline RBOB | Palladium vs. Lumber Futures |
| Gold Futures vs. Mini Dow Jones | Gold Futures vs. Gasoline RBOB | Gold Futures vs. Rough Rice Futures | Gold Futures vs. Platinum |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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