Correlation Between Brent Crude and Aluminum Futures
Can any of the company-specific risk be diversified away by investing in both Brent Crude and Aluminum Futures 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 Brent Crude and Aluminum Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brent Crude Oil and Aluminum Futures, you can compare the effects of market volatilities on Brent Crude and Aluminum Futures 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 Brent Crude with a short position of Aluminum Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brent Crude and Aluminum Futures.
Diversification Opportunities for Brent Crude and Aluminum Futures
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Brent and Aluminum is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures and Brent Crude 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 Brent Crude Oil are associated (or correlated) with Aluminum Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminum Futures has no effect on the direction of Brent Crude i.e., Brent Crude and Aluminum Futures go up and down completely randomly.
Pair Corralation between Brent Crude and Aluminum Futures
Assuming the 90 days horizon Brent Crude is expected to generate 7.07 times less return on investment than Aluminum Futures. In addition to that, Brent Crude is 1.17 times more volatile than Aluminum Futures. It trades about 0.01 of its total potential returns per unit of risk. Aluminum Futures is currently generating about 0.06 per unit of volatility. If you would invest 217,550 in Aluminum Futures on October 21, 2024 and sell it today you would earn a total of 51,125 from holding Aluminum Futures or generate 23.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Brent Crude Oil vs. Aluminum Futures
Performance |
| Timeline |
| Brent Crude Oil |
| Aluminum Futures |
Brent Crude and Aluminum Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brent Crude and Aluminum Futures
The main advantage of trading using opposite Brent Crude and Aluminum Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brent Crude position performs unexpectedly, Aluminum Futures 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 Aluminum Futures will offset losses from the drop in Aluminum Futures' long position.| Brent Crude vs. Palladium | Brent Crude vs. 30 Year Treasury | Brent Crude vs. Aluminum Futures | Brent Crude vs. Class III Milk |
| Aluminum Futures vs. Crude Oil | Aluminum Futures vs. Brent Crude Oil | Aluminum Futures vs. US Dollar | Aluminum Futures vs. Cocoa |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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