Correlation Between Precious Metals and M Large

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

Diversification Opportunities for Precious Metals and M Large

0.63

Correlation Coefficient

Precious Metals  M Large

Poor diversification

The 3 months correlation between Precious and MTCGX is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals Ultrasector and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large Cap 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 M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of Precious Metals i.e., Precious Metals and M Large go up and down completely randomly.

Pair Corralation between Precious Metals and M Large

Assuming the 90 days horizon Precious Metals Ultrasector is expected to generate 3.44 times more return on investment than M Large. However, Precious Metals is 3.44 times more volatile than M Large Cap. It trades about 0.08 of its potential returns per unit of risk. M Large Cap is currently generating about 0.22 per unit of risk. If you would invest  7,604  in Precious Metals Ultrasector on May 4, 2025 and sell it today you would earn a total of  1,078  from holding Precious Metals Ultrasector or generate 14.18% return on investment over 90 days.

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

Precious Metals Ultrasector  vs.  M Large Cap

Precious Metals Ultr

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Ultrasector are ranked lower than 6 (%) 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.

M Large Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, M Large showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Precious Metals and M Large

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

The idea behind Precious Metals Ultrasector and M Large Cap 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.