Correlation Between Energy Services and Precious Metals

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Can any of the company-specific risk be diversified away by investing in both Energy Services and Precious Metals 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 Energy Services and Precious Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Services Fund and Precious Metals Fund, you can compare the effects of market volatilities on Energy Services and Precious Metals 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 Energy Services with a short position of Precious Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Services and Precious Metals.

Diversification Opportunities for Energy Services and Precious Metals

EnergyPreciousDiversified AwayEnergyPreciousDiversified Away100%
0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Energy and Precious is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Energy Services Fund and Precious Metals Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals and Energy Services 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 Energy Services Fund are associated (or correlated) with Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals has no effect on the direction of Energy Services i.e., Energy Services and Precious Metals go up and down completely randomly.

Pair Corralation between Energy Services and Precious Metals

Assuming the 90 days horizon Energy Services Fund is expected to under-perform the Precious Metals. But the mutual fund apears to be less risky and, when comparing its historical volatility, Energy Services Fund is 1.38 times less risky than Precious Metals. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Precious Metals Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,093  in Precious Metals Fund on November 23, 2024 and sell it today you would earn a total of  243.00  from holding Precious Metals Fund or generate 5.94% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Energy Services Fund  vs.  Precious Metals Fund

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-5051015
JavaScript chart by amCharts 3.21.15RYVIX RYPMX
       Timeline  
Energy Services 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Energy Services Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb220225230235240245250
Precious Metals 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Precious Metals may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb383940414243444546

Energy Services and Precious Metals Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.42-1.83-1.23-0.64-0.050.521.111.72.292.88 0.080.100.120.140.160.18
JavaScript chart by amCharts 3.21.15RYVIX RYPMX
       Returns  

Pair Trading with Energy Services and Precious Metals

The main advantage of trading using opposite Energy Services and Precious Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Services position performs unexpectedly, Precious Metals 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 Precious Metals will offset losses from the drop in Precious Metals' long position.
The idea behind Energy Services Fund and Precious Metals Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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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