Correlation Between Palladium and Brent Crude

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

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

Diversification Opportunities for Palladium and Brent Crude

0.13

Correlation Coefficient

Palladium  Brent Crude

Average diversification

The 3 months correlation between Palladium and Brent is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Palladium and Brent Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brent Crude Oil and Palladium 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 Palladium are associated (or correlated) with Brent Crude. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brent Crude Oil has no effect on the direction of Palladium i.e., Palladium and Brent Crude go up and down completely randomly.

Pair Corralation between Palladium and Brent Crude

Assuming the 90 days horizon Palladium is expected to generate 1.43 times more return on investment than Brent Crude. However, Palladium is 1.43 times more volatile than Brent Crude Oil. It trades about 0.05 of its potential returns per unit of risk. Brent Crude Oil is currently generating about 0.01 per unit of risk. If you would invest  93,330  in Palladium on September 2, 2024 and sell it today you would earn a total of  5,690  from holding Palladium or generate 6.1% return on investment over 90 days.

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

Palladium  vs.  Brent Crude Oil

Palladium

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Palladium are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Palladium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Palladium and Brent Crude

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

The idea behind Palladium and Brent 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.