Correlation Between Gold Futures and Five Year

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

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

Diversification Opportunities for Gold Futures and Five Year

0.73

Correlation Coefficient

Gold Futures  Five Year

Poor diversification

The 3 months correlation between Gold and Five is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Gold Futures and Five Year Treasury Note in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Year Treasury 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 Five Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Year Treasury has no effect on the direction of Gold Futures i.e., Gold Futures and Five Year go up and down completely randomly.

Pair Corralation between Gold Futures and Five Year

Assuming the 90 days horizon Gold Futures is expected to generate 3.87 times more return on investment than Five Year. However, Gold Futures is 3.87 times more volatile than Five Year Treasury Note. It trades about 0.26 of its potential returns per unit of risk. Five Year Treasury Note is currently generating about 0.11 per unit of risk. If you would invest  263,190  in Gold Futures on December 27, 2024 and sell it today you would earn a total of  39,330  from holding Gold Futures or generate 14.94% return on investment over 90 days.

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

Gold Futures  vs.  Five Year Treasury Note

Gold Futures

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Futures are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Gold Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Five Year Treasury

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Five Year Treasury Note are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Five Year 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 Five Year

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

The idea behind Gold Futures and Five Year Treasury Note 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.