Correlation Between Gold Futures and Sugar

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

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

Diversification Opportunities for Gold Futures and Sugar

0.32

Correlation Coefficient

Gold Futures  Sugar

Weak diversification

The 3 months correlation between Gold and Sugar is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Gold Futures and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar 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 Sugar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sugar has no effect on the direction of Gold Futures i.e., Gold Futures and Sugar go up and down completely randomly.

Pair Corralation between Gold Futures and Sugar

Assuming the 90 days horizon Gold Futures is expected to generate 0.47 times more return on investment than Sugar. However, Gold Futures is 2.13 times less risky than Sugar. It trades about 0.29 of its potential returns per unit of risk. Sugar is currently generating about 0.01 per unit of risk. If you would invest  261,810  in Gold Futures on December 28, 2024 and sell it today you would earn a total of  45,090  from holding Gold Futures or generate 17.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Gold Futures  vs.  Sugar

Gold Futures

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Futures are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gold Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sugar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sugar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Sugar is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gold Futures and Sugar

The main advantage of trading using opposite Gold Futures and Sugar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gold Futures position performs unexpectedly, Sugar 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 Sugar will offset losses from the drop in Sugar's long position.

The idea behind Gold Futures and Sugar 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.