Correlation Between Precious Metals and Oil Equipment

Can any of the company-specific risk be diversified away by investing in both Precious Metals and Oil Equipment 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 Equipment 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 Equipment Services, you can compare the effects of market volatilities on Precious Metals and Oil Equipment 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 Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Precious Metals and Oil Equipment.

Diversification Opportunities for Precious Metals and Oil Equipment

-0.41

Correlation Coefficient

Precious Metals  Oil Equipment

Very good diversification

The 3 months correlation between Precious and Oil is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals Ultrasector and Oil Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Equipment Services 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 Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Equipment Services has no effect on the direction of Precious Metals i.e., Precious Metals and Oil Equipment go up and down completely randomly.

Pair Corralation between Precious Metals and Oil Equipment

Assuming the 90 days horizon Precious Metals Ultrasector is expected to under-perform the Oil Equipment. But the mutual fund apears to be less risky and, when comparing its historical volatility, Precious Metals Ultrasector is 1.09 times less risky than Oil Equipment. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Oil Equipment Services is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,876  in Oil Equipment Services on September 15, 2024 and sell it today you would lose (133.00) from holding Oil Equipment Services or give up 1.69% of portfolio value 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 Equipment Services

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 weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Oil Equipment Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Precious Metals and Oil Equipment

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

The idea behind Precious Metals Ultrasector and Oil Equipment Services 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.