Correlation Between Nasdaq 100 and Gold Futures

Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 and Gold 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 Nasdaq 100 and Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 and Gold Futures, you can compare the effects of market volatilities on Nasdaq 100 and Gold 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 Nasdaq 100 with a short position of Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Gold Futures.

Diversification Opportunities for Nasdaq 100 and Gold Futures

-0.48

Correlation Coefficient

Nasdaq 100  Gold Futures

Very good diversification

The 3 months correlation between Nasdaq and Gold is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and Nasdaq 100 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 Nasdaq 100 are associated (or correlated) with Gold Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Futures has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Gold Futures go up and down completely randomly.

Pair Corralation between Nasdaq 100 and Gold Futures

Assuming the 90 days horizon Nasdaq 100 is expected to under-perform the Gold Futures. In addition to that, Nasdaq 100 is 1.7 times more volatile than Gold Futures. It trades about -0.07 of its total potential returns per unit of risk. Gold Futures is currently generating about 0.29 per unit of volatility. If you would invest  261,810  in Gold Futures on December 28, 2024 and sell it today you would earn a total of  45,090  from holding Gold Futures or generate 17.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Nasdaq 100  vs.  Gold Futures

Nasdaq 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nasdaq 100 is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Gold Futures

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Futures are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gold Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq 100 and Gold Futures

The main advantage of trading using opposite Nasdaq 100 and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 position performs unexpectedly, Gold 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 Gold Futures will offset losses from the drop in Gold Futures' long position.

The idea behind Nasdaq 100 and Gold 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 Commodity Directory module to find actively traded commodities issued by global exchanges.