Correlation Between E Mini and Palladium

Can any of the company-specific risk be diversified away by investing in both E Mini 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 E Mini and Palladium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between E Mini SP 500 and Palladium, you can compare the effects of market volatilities on E Mini 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 E Mini with a short position of Palladium. Check out your portfolio center. Please also check ongoing floating volatility patterns of E Mini and Palladium.

Diversification Opportunities for E Mini and Palladium

0.33

Correlation Coefficient

E Mini  Palladium

Weak diversification

The 3 months correlation between ESUSD and Palladium is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding E Mini SP 500 and Palladium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palladium and E Mini 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 E Mini SP 500 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 E Mini i.e., E Mini and Palladium go up and down completely randomly.

Pair Corralation between E Mini and Palladium

Assuming the 90 days horizon E Mini SP 500 is expected to under-perform the Palladium. But the commodity apears to be less risky and, when comparing its historical volatility, E Mini SP 500 is 1.9 times less risky than Palladium. The commodity trades about -0.08 of its potential returns per unit of risk. The Palladium is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  90,110  in Palladium on December 30, 2024 and sell it today you would earn a total of  8,370  from holding Palladium or generate 9.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

E Mini SP 500  vs.  Palladium

E Mini SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days E Mini SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, E Mini is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Palladium

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palladium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Palladium may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with E Mini and Palladium

The main advantage of trading using opposite E Mini and Palladium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E Mini 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.

The idea behind E Mini SP 500 and Palladium 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 Commodity Directory module to find actively traded commodities issued by global exchanges.