Correlation Between Palladium and E Mini

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

By analyzing existing cross correlation between Palladium and E Mini SP 500, you can compare the effects of market volatilities on Palladium and E Mini 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 Palladium with a short position of E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palladium and E Mini.

Diversification Opportunities for Palladium and E Mini

0.33

Correlation Coefficient

Palladium  E Mini

Weak diversification

The 3 months correlation between Palladium and ESUSD is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Palladium and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP and Palladium 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 Palladium are associated (or correlated) with E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Palladium i.e., Palladium and E Mini go up and down completely randomly.

Pair Corralation between Palladium and E Mini

Assuming the 90 days horizon Palladium is expected to generate 1.9 times more return on investment than E Mini. However, Palladium is 1.9 times more volatile than E Mini SP 500. It trades about 0.08 of its potential returns per unit of risk. E Mini SP 500 is currently generating about -0.08 per unit of risk. If you would invest  90,110  in Palladium on December 30, 2024 and sell it today you would earn a total of  8,370  from holding Palladium or generate 9.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Palladium  vs.  E Mini SP 500

Palladium

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palladium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Palladium may actually be approaching a critical reversion point that can send shares even higher in April 2025.

E Mini SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days E Mini SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, E Mini is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Palladium and E Mini

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

The idea behind Palladium and E Mini SP 500 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.