Correlation Between Aluminum Futures and Micro Gold
Can any of the company-specific risk be diversified away by investing in both Aluminum Futures and Micro Gold 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 Micro Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aluminum Futures and Micro Gold Futures, you can compare the effects of market volatilities on Aluminum Futures and Micro Gold 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 Micro Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminum Futures and Micro Gold.
Diversification Opportunities for Aluminum Futures and Micro Gold
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Aluminum and Micro is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum Futures and Micro Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro Gold Futures 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 Micro Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Gold Futures has no effect on the direction of Aluminum Futures i.e., Aluminum Futures and Micro Gold go up and down completely randomly.
Pair Corralation between Aluminum Futures and Micro Gold
Assuming the 90 days trading horizon Aluminum Futures is expected to generate 1.51 times more return on investment than Micro Gold. However, Aluminum Futures is 1.51 times more volatile than Micro Gold Futures. It trades about -0.03 of its potential returns per unit of risk. Micro Gold Futures is currently generating about -0.14 per unit of risk. If you would invest 259,400 in Aluminum Futures on August 29, 2024 and sell it today you would lose (4,300) from holding Aluminum Futures or give up 1.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aluminum Futures vs. Micro Gold Futures
Performance |
| Timeline |
| Aluminum Futures |
| Micro Gold Futures |
Aluminum Futures and Micro Gold Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aluminum Futures and Micro Gold
The main advantage of trading using opposite Aluminum Futures and Micro Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminum Futures position performs unexpectedly, Micro Gold 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 Micro Gold will offset losses from the drop in Micro Gold's long position.| Aluminum Futures vs. Gasoline RBOB | Aluminum Futures vs. Rough Rice Futures | Aluminum Futures vs. Platinum | Aluminum Futures vs. Soybean Futures |
| Micro Gold vs. Gold Futures | Micro Gold vs. Soybean Meal Futures | Micro Gold vs. Coffee | Micro Gold vs. Sugar |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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