Correlation Between Wheat Futures and Gold Futures

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

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

Diversification Opportunities for Wheat Futures and Gold Futures

0.57

Correlation Coefficient

Wheat Futures  Gold Futures

Very weak diversification

The 3 months correlation between Wheat and Gold is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and Wheat 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 Wheat Futures are associated (or correlated) with Gold Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Futures has no effect on the direction of Wheat Futures i.e., Wheat Futures and Gold Futures go up and down completely randomly.

Pair Corralation between Wheat Futures and Gold Futures

Assuming the 90 days horizon Wheat Futures is expected to generate 5.96 times less return on investment than Gold Futures. In addition to that, Wheat Futures is 1.91 times more volatile than Gold Futures. It trades about 0.03 of its total potential returns per unit of risk. Gold Futures is currently generating about 0.29 per unit of volatility. 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	Weak
Accuracy	100.0%
Values	Daily Returns

Wheat Futures  vs.  Gold Futures

Wheat Futures

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wheat Futures are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Wheat Futures is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Wheat Futures and Gold Futures

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

The idea behind Wheat Futures and Gold Futures 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.