Correlation Between Micro E and Gold Futures

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

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

Diversification Opportunities for Micro E and Gold Futures

-0.59

Correlation Coefficient

Micro E  Gold Futures

Excellent diversification

The 3 months correlation between Micro and Gold is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Micro E mini Russell and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and Micro E 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 Micro E mini Russell 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 Micro E i.e., Micro E and Gold Futures go up and down completely randomly.

Pair Corralation between Micro E and Gold Futures

Assuming the 90 days trading horizon Micro E mini Russell is expected to under-perform the Gold Futures. In addition to that, Micro E is 1.37 times more volatile than Gold Futures. It trades about -0.1 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

Micro E mini Russell  vs.  Gold Futures

Micro E mini

Risk-Adjusted Performance

Very Weak

Over the last 90 days Micro E mini Russell has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Commodity's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Micro E mini Russell 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 Micro E and Gold Futures

The main advantage of trading using opposite Micro E and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro E 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 Micro E mini Russell 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.