Correlation Between Micro Gold and Rough Rice

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

Diversification Opportunities for Micro Gold and Rough Rice

-0.71

Correlation Coefficient

Micro Gold  Rough Rice

Pay attention - limited upside

The 3 months correlation between Micro and Rough is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Micro Gold Futures and Rough Rice Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rough Rice 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 Rough Rice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rough Rice Futures has no effect on the direction of Micro Gold i.e., Micro Gold and Rough Rice go up and down completely randomly.

Pair Corralation between Micro Gold and Rough Rice

Assuming the 90 days trading horizon Micro Gold Futures is expected to generate 0.7 times more return on investment than Rough Rice. However, Micro Gold Futures is 1.43 times less risky than Rough Rice. It trades about 0.34 of its potential returns per unit of risk. Rough Rice Futures is currently generating about -0.03 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 Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Micro Gold Futures  vs.  Rough Rice Futures

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.

Rough Rice Futures

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rough Rice Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rough Rice 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 Rough Rice

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

The idea behind Micro Gold Futures and Rough Rice 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.

Check out your portfolio center.

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.