Correlation Between Micro Gold and Brent Crude

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

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

Diversification Opportunities for Micro Gold and Brent Crude

0.13

Correlation Coefficient

Micro Gold  Brent Crude

Average diversification

The 3 months correlation between Micro and Brent is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Micro Gold Futures and Brent Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brent Crude Oil and Micro Gold 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 Micro Gold Futures are associated (or correlated) with Brent Crude. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brent Crude Oil has no effect on the direction of Micro Gold i.e., Micro Gold and Brent Crude go up and down completely randomly.

Pair Corralation between Micro Gold and Brent Crude

Assuming the 90 days trading horizon Micro Gold Futures is expected to generate 0.7 times more return on investment than Brent Crude. However, Micro Gold Futures is 1.42 times less risky than Brent Crude. It trades about 0.13 of its potential returns per unit of risk. Brent Crude Oil is currently generating about 0.03 per unit of risk. If you would invest  265,850  in Micro Gold Futures on December 1, 2024 and sell it today you would earn a total of  20,560  from holding Micro Gold Futures or generate 7.73% return on investment over 90 days.

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

Micro Gold Futures  vs.  Brent Crude Oil

Micro Gold Futures

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Gold Futures are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Micro Gold may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Brent Crude Oil

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Brent Crude Oil are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Brent Crude is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Micro Gold and Brent Crude

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

The idea behind Micro Gold Futures and Brent Crude Oil 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.