Correlation Between Palladium and Silver Futures

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

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

Diversification Opportunities for Palladium and Silver Futures

0.42

Correlation Coefficient

Palladium  Silver Futures

Very weak diversification

The 3 months correlation between Palladium and Silver is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Palladium and Silver Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Futures 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 Silver Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Futures has no effect on the direction of Palladium i.e., Palladium and Silver Futures go up and down completely randomly.

Pair Corralation between Palladium and Silver Futures

Assuming the 90 days horizon Palladium is expected to generate 1.72 times less return on investment than Silver Futures. In addition to that, Palladium is 1.38 times more volatile than Silver Futures. It trades about 0.08 of its total potential returns per unit of risk. Silver Futures is currently generating about 0.18 per unit of volatility. If you would invest  2,941  in Silver Futures on December 30, 2024 and sell it today you would earn a total of  540.00  from holding Silver Futures or generate 18.36% return on investment over 90 days.

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

Palladium  vs.  Silver Futures

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.

Silver Futures

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Silver Futures are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Silver Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palladium and Silver Futures

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

The idea behind Palladium and Silver 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.