Correlation Between Precious Metals and Applied Finance

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

Diversification Opportunities for Precious Metals and Applied Finance

0.55

Correlation Coefficient

Precious Metals  Applied Finance

Very weak diversification

The 3 months correlation between Precious and Applied is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals Ultrasector and Applied Finance Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Select 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 Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Select has no effect on the direction of Precious Metals i.e., Precious Metals and Applied Finance go up and down completely randomly.

Pair Corralation between Precious Metals and Applied Finance

Assuming the 90 days horizon Precious Metals Ultrasector is expected to generate 5.4 times more return on investment than Applied Finance. However, Precious Metals is 5.4 times more volatile than Applied Finance Select. It trades about 0.0 of its potential returns per unit of risk. Applied Finance Select is currently generating about -0.28 per unit of risk. If you would invest  13,815  in Precious Metals Ultrasector on August 24, 2025 and sell it today you would lose (194.00) from holding Precious Metals Ultrasector or give up 1.4% of portfolio value over 90 days.

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

Precious Metals Ultrasector  vs.  Applied Finance Select

Precious Metals Ultr

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Ultrasector are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Precious Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Applied Finance Select

Risk-Adjusted Performance

Weakest

Over the last 90 days Applied Finance Select has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Applied Finance 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 Applied Finance

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

The idea behind Precious Metals Ultrasector and Applied Finance Select 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 Global Correlations module to find global opportunities by holding instruments from different markets.