Correlation Between Precious Metals and Oil Gas

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

By analyzing existing cross correlation between Precious Metals Ultrasector and Oil Gas Ultrasector, you can compare the effects of market volatilities on Precious Metals and Oil Gas 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 Oil Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Precious Metals and Oil Gas.

Diversification Opportunities for Precious Metals and Oil Gas

-0.44

Correlation Coefficient

Precious Metals  Oil Gas

Very good diversification

The 3 months correlation between Precious and Oil is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals Ultrasector and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector 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 Ultrasector are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Precious Metals i.e., Precious Metals and Oil Gas go up and down completely randomly.

Pair Corralation between Precious Metals and Oil Gas

Assuming the 90 days horizon Precious Metals Ultrasector is expected to under-perform the Oil Gas. In addition to that, Precious Metals is 1.61 times more volatile than Oil Gas Ultrasector. It trades about -0.01 of its total potential returns per unit of risk. Oil Gas Ultrasector is currently generating about 0.1 per unit of volatility. If you would invest  4,282  in Oil Gas Ultrasector on August 31, 2024 and sell it today you would earn a total of  438.00  from holding Oil Gas Ultrasector or generate 10.23% return on investment over 90 days.

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

Precious Metals Ultrasector  vs.  Oil Gas Ultrasector

Precious Metals Ultr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precious Metals Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Precious Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Oil Gas Ultrasector

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Gas Ultrasector are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Oil Gas may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Precious Metals and Oil Gas

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

The idea behind Precious Metals Ultrasector and Oil Gas Ultrasector 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.