Correlation Between Micro Gold and 30 Year

Can any of the company-specific risk be diversified away by investing in both Micro Gold and 30 Year 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 30 Year 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 30 Year Treasury, you can compare the effects of market volatilities on Micro Gold and 30 Year 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 30 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro Gold and 30 Year.

Diversification Opportunities for Micro Gold and 30 Year

0.8

Correlation Coefficient

Micro Gold  30 Year

Very poor diversification

The 3 months correlation between Micro and ZBUSD is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Micro Gold Futures and 30 Year Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 30 Year Treasury 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 30 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 30 Year Treasury has no effect on the direction of Micro Gold i.e., Micro Gold and 30 Year go up and down completely randomly.

Pair Corralation between Micro Gold and 30 Year

Assuming the 90 days trading horizon Micro Gold Futures is expected to generate 1.41 times more return on investment than 30 Year. However, Micro Gold is 1.41 times more volatile than 30 Year Treasury. It trades about 0.34 of its potential returns per unit of risk. 30 Year Treasury is currently generating about 0.07 per unit of risk. If you would invest  261,810  in Micro Gold Futures on December 29, 2024 and sell it today you would earn a total of  52,180  from holding Micro Gold Futures or generate 19.93% 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.  30 Year Treasury

Micro Gold Futures

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Gold Futures are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Micro Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

30 Year Treasury

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in 30 Year Treasury are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, 30 Year 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 30 Year

The main advantage of trading using opposite Micro Gold and 30 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro Gold position performs unexpectedly, 30 Year 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 30 Year will offset losses from the drop in 30 Year's long position.

The idea behind Micro Gold Futures and 30 Year Treasury 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.