Correlation Between Precious Metals and Energy Income

Can any of the company-specific risk be diversified away by investing in both Precious Metals and Energy Income 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 Precious Metals and Energy Income into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Precious Metals And and Energy Income, you can compare the effects of market volatilities on Precious Metals and Energy Income 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 Precious Metals with a short position of Energy Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Precious Metals and Energy Income.

Diversification Opportunities for Precious Metals and Energy Income

0.02

Correlation Coefficient

Precious Metals  Energy Income

Significant diversification

The 3 months correlation between Precious and Energy is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals And and Energy Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Income and Precious Metals 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 Precious Metals And are associated (or correlated) with Energy Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Income has no effect on the direction of Precious Metals i.e., Precious Metals and Energy Income go up and down completely randomly.

Pair Corralation between Precious Metals and Energy Income

Assuming the 90 days trading horizon Precious Metals is expected to generate 11.54 times less return on investment than Energy Income. But when comparing it to its historical volatility, Precious Metals And is 1.01 times less risky than Energy Income. It trades about 0.01 of its potential returns per unit of risk. Energy Income is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  153.00  in Energy Income on September 4, 2024 and sell it today you would earn a total of  11.00  from holding Energy Income or generate 7.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Precious Metals And  vs.  Energy Income

Precious Metals And

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precious Metals And has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Precious Metals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Energy Income

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Income are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Energy Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Precious Metals and Energy Income

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

The idea behind Precious Metals And and Energy Income 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.