Correlation Between Brent Crude and Micro Gold

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

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

Diversification Opportunities for Brent Crude and Micro Gold

0.24

Correlation Coefficient

Brent Crude  Micro Gold

Modest diversification

The 3 months correlation between Brent and Micro is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil and Micro Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro Gold Futures and Brent Crude 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 Brent Crude Oil are associated (or correlated) with Micro Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Gold Futures has no effect on the direction of Brent Crude i.e., Brent Crude and Micro Gold go up and down completely randomly.

Pair Corralation between Brent Crude and Micro Gold

Assuming the 90 days horizon Brent Crude is expected to generate 6.68 times less return on investment than Micro Gold. In addition to that, Brent Crude is 1.99 times more volatile than Micro Gold Futures. It trades about 0.01 of its total potential returns per unit of risk. Micro Gold Futures is currently generating about 0.08 per unit of volatility. If you would invest  252,300  in Micro Gold Futures on September 2, 2024 and sell it today you would earn a total of  13,400  from holding Micro Gold Futures or generate 5.31% return on investment over 90 days.

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

Brent Crude Oil  vs.  Micro Gold Futures

Brent Crude Oil

Risk-Adjusted Performance

0 of 100

Very Weak

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

Micro Gold Futures

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Gold Futures are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Micro Gold is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Brent Crude and Micro Gold

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

The idea behind Brent Crude Oil and Micro 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.