Correlation Between Micro Gold and Micro Silver

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

Diversification Opportunities for Micro Gold and Micro Silver

0.85

Correlation Coefficient

Micro Gold  Micro Silver

Very poor diversification

The 3 months correlation between Micro and Micro is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Micro Gold Futures and Micro Silver Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro Silver Futures 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 Micro Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Silver Futures has no effect on the direction of Micro Gold i.e., Micro Gold and Micro Silver go up and down completely randomly.

Pair Corralation between Micro Gold and Micro Silver

Assuming the 90 days trading horizon Micro Gold Futures is expected to generate 0.56 times more return on investment than Micro Silver. However, Micro Gold Futures is 1.78 times less risky than Micro Silver. It trades about 0.16 of its potential returns per unit of risk. Micro Silver Futures is currently generating about 0.04 per unit of risk. If you would invest  268,100  in Micro Gold Futures on November 28, 2024 and sell it today you would earn a total of  24,690  from holding Micro Gold Futures or generate 9.21% return on investment over 90 days.

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

Micro Gold Futures  vs.  Micro Silver Futures

Micro Gold Futures

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Gold Futures are ranked lower than 12 (%) 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 March 2025.

Micro Silver Futures

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Silver Futures are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Micro Silver is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Micro Gold and Micro Silver

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

The idea behind Micro Gold Futures and Micro Silver 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.