Correlation Between Gold Futures and Copper

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

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

Diversification Opportunities for Gold Futures and Copper

0.44

Correlation Coefficient

Gold Futures  Copper

Very weak diversification

The 3 months correlation between Gold and Copper is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Gold Futures and Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copper and Gold Futures 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 Gold Futures 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 Gold Futures i.e., Gold Futures and Copper go up and down completely randomly.

Pair Corralation between Gold Futures and Copper

Assuming the 90 days horizon Gold Futures is expected to generate 0.68 times more return on investment than Copper. However, Gold Futures is 1.46 times less risky than Copper. It trades about 0.09 of its potential returns per unit of risk. Copper is currently generating about 0.02 per unit of risk. If you would invest  258,060  in Gold Futures on September 12, 2024 and sell it today you would earn a total of  13,860  from holding Gold Futures or generate 5.37% return on investment over 90 days.

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

Gold Futures  vs.  Copper

Gold Futures

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Futures are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Gold Futures is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Copper

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Copper are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Copper is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Gold Futures and Copper

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

The idea behind Gold Futures and Copper 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.