Correlation Between Micro Gold and Corn Futures

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

Diversification Opportunities for Micro Gold and Corn Futures

0.11

Correlation Coefficient

Micro Gold  Corn Futures

Average diversification

The 3 months correlation between Micro and Corn is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Micro Gold Futures and Corn Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corn 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 Corn Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corn Futures has no effect on the direction of Micro Gold i.e., Micro Gold and Corn Futures go up and down completely randomly.

Pair Corralation between Micro Gold and Corn Futures

Assuming the 90 days trading horizon Micro Gold Futures is expected to generate 0.67 times more return on investment than Corn Futures. However, Micro Gold Futures is 1.5 times less risky than Corn Futures. It trades about 0.27 of its potential returns per unit of risk. Corn Futures is currently generating about 0.02 per unit of risk. If you would invest  265,390  in Micro Gold Futures on December 26, 2024 and sell it today you would earn a total of  40,100  from holding Micro Gold Futures or generate 15.11% 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.  Corn Futures

Micro Gold Futures

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Gold Futures are ranked lower than 21 (%) 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.

Corn Futures

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Corn Futures are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Corn Futures is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Micro Gold and Corn Futures

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

The idea behind Micro Gold Futures and Corn 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.