Correlation Between Micro Gold and Sugar

Can any of the company-specific risk be diversified away by investing in both Micro Gold 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 Micro Gold and Sugar 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 Sugar, you can compare the effects of market volatilities on Micro Gold 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 Micro Gold with a short position of Sugar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro Gold and Sugar.

Diversification Opportunities for Micro Gold and Sugar

0.7

Correlation Coefficient

Micro Gold  Sugar

Poor diversification

The 3 months correlation between Micro and Sugar is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Micro Gold Futures and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar 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 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 Micro Gold i.e., Micro Gold and Sugar go up and down completely randomly.

Pair Corralation between Micro Gold and Sugar

Assuming the 90 days trading horizon Micro Gold is expected to generate 1.75 times less return on investment than Sugar. But when comparing it to its historical volatility, Micro Gold Futures is 1.8 times less risky than Sugar. It trades about 0.09 of its potential returns per unit of risk. Sugar is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,924  in Sugar on September 4, 2024 and sell it today you would earn a total of  188.00  from holding Sugar or generate 9.77% return on investment over 90 days.

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

Micro Gold Futures  vs.  Sugar

Micro Gold Futures

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Gold Futures are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Micro Gold is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sugar

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sugar are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Sugar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Micro Gold and Sugar

The main advantage of trading using opposite Micro Gold and Sugar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro Gold 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 Micro 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.