Correlation Between Platinum and Crude Oil

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

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

Diversification Opportunities for Platinum and Crude Oil

-0.22

Correlation Coefficient

Platinum  Crude Oil

Very good diversification

The 3 months correlation between Platinum and Crude is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Platinum and Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crude Oil and Platinum 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 Platinum are associated (or correlated) with Crude Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crude Oil has no effect on the direction of Platinum i.e., Platinum and Crude Oil go up and down completely randomly.

Pair Corralation between Platinum and Crude Oil

Assuming the 90 days horizon Platinum is expected to generate 1.1 times more return on investment than Crude Oil. However, Platinum is 1.1 times more volatile than Crude Oil. It trades about 0.08 of its potential returns per unit of risk. Crude Oil is currently generating about -0.02 per unit of risk. If you would invest  91,980  in Platinum on December 29, 2024 and sell it today you would earn a total of  7,630  from holding Platinum or generate 8.3% return on investment over 90 days.

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

Platinum  vs.  Crude Oil

Platinum

Risk-Adjusted Performance

Modest

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

Crude Oil

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Platinum and Crude Oil

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

The idea behind Platinum and Crude Oil 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.