Correlation Between 2 Year and Gold Futures

Can any of the company-specific risk be diversified away by investing in both 2 Year 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 2 Year and Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 2 Year T Note Futures and Gold Futures, you can compare the effects of market volatilities on 2 Year 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 2 Year with a short position of Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of 2 Year and Gold Futures.

Diversification Opportunities for 2 Year and Gold Futures

-0.21

Correlation Coefficient

2 Year  Gold Futures

Very good diversification

The 3 months correlation between ZTUSD and Gold is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding 2 Year T Note Futures and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and 2 Year 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 2 Year T Note Futures 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 2 Year i.e., 2 Year and Gold Futures go up and down completely randomly.

Pair Corralation between 2 Year and Gold Futures

Assuming the 90 days horizon 2 Year T Note Futures is expected to under-perform the Gold Futures. But the commodity apears to be less risky and, when comparing its historical volatility, 2 Year T Note Futures is 10.74 times less risky than Gold Futures. The commodity trades about -0.19 of its potential returns per unit of risk. The Gold Futures is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  258,060  in Gold Futures on September 12, 2024 and sell it today you would earn a total of  17,300  from holding Gold Futures or generate 6.7% return on investment over 90 days.

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

2 Year T Note Futures  vs.  Gold Futures

2 Year T

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 2 Year T Note Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, 2 Year is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Gold Futures

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Futures are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gold Futures may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with 2 Year and Gold Futures

The main advantage of trading using opposite 2 Year and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 2 Year 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 2 Year T Note Futures 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .