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

0.9

Correlation Coefficient

Wheat Futures  Gold Futures

Almost no diversification

The 3 months correlation between Wheat and Gold is 0.9. 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 1.54 times less return on investment than Gold Futures. In addition to that, Wheat Futures is 1.81 times more volatile than Gold Futures. It trades about 0.06 of its total potential returns per unit of risk. Gold Futures is currently generating about 0.17 per unit of volatility. If you would invest  266,900  in Gold Futures on December 2, 2024 and sell it today you would earn a total of  17,950  from holding Gold Futures or generate 6.73% return on investment over 90 days.

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

Wheat Futures  vs.  Gold Futures

Wheat Futures

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wheat Futures are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Wheat Futures may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Gold Futures

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Futures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gold Futures may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.