Correlation Between Aluminum Futures and Cotton
Can any of the company-specific risk be diversified away by investing in both Aluminum Futures and Cotton 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 Aluminum Futures and Cotton into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aluminum Futures and Cotton, you can compare the effects of market volatilities on Aluminum Futures and Cotton 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 Aluminum Futures with a short position of Cotton. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminum Futures and Cotton.
Diversification Opportunities for Aluminum Futures and Cotton
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Aluminum and Cotton is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum Futures and Cotton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cotton and Aluminum Futures 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 Aluminum Futures are associated (or correlated) with Cotton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cotton has no effect on the direction of Aluminum Futures i.e., Aluminum Futures and Cotton go up and down completely randomly.
Pair Corralation between Aluminum Futures and Cotton
Assuming the 90 days trading horizon Aluminum Futures is expected to generate 1.39 times more return on investment than Cotton. However, Aluminum Futures is 1.39 times more volatile than Cotton. It trades about 0.14 of its potential returns per unit of risk. Cotton is currently generating about -0.2 per unit of risk. If you would invest 249,825 in Aluminum Futures on November 3, 2024 and sell it today you would earn a total of 8,925 from holding Aluminum Futures or generate 3.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aluminum Futures vs. Cotton
Performance |
| Timeline |
| Aluminum Futures |
| Cotton |
Aluminum Futures and Cotton Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aluminum Futures and Cotton
The main advantage of trading using opposite Aluminum Futures and Cotton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminum Futures position performs unexpectedly, Cotton 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 Cotton will offset losses from the drop in Cotton's long position.| Aluminum Futures vs. Crude Oil | Aluminum Futures vs. E Mini SP 500 | Aluminum Futures vs. US Dollar | Aluminum Futures vs. Palladium |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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