Correlation Between Palladium and Copper
Can any of the company-specific risk be diversified away by investing in both Palladium and Copper 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 Copper into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Palladium and Copper, you can compare the effects of market volatilities on Palladium and Copper 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 Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palladium and Copper.
Diversification Opportunities for Palladium and Copper
Very weak diversification
The 3 months correlation between Palladium and Copper is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Palladium and Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copper 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 Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copper has no effect on the direction of Palladium i.e., Palladium and Copper go up and down completely randomly.
Pair Corralation between Palladium and Copper
Assuming the 90 days horizon Palladium is expected to under-perform the Copper. In addition to that, Palladium is 1.96 times more volatile than Copper. It trades about -0.04 of its total potential returns per unit of risk. Copper is currently generating about 0.02 per unit of volatility. If you would invest 380.00 in Copper on September 2, 2024 and sell it today you would earn a total of 28.00 from holding Copper or generate 7.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Palladium vs. Copper
Performance |
| Timeline |
| Palladium |
| Copper |
Palladium and Copper Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Palladium and Copper
The main advantage of trading using opposite Palladium and Copper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palladium position performs unexpectedly, Copper 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 Copper will offset losses from the drop in Copper's long position.| Palladium vs. Wheat Futures | Palladium vs. Lumber Futures | Palladium vs. Feeder Cattle Futures | Palladium vs. Lean Hogs 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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