Correlation Between Brent Crude and E Mini
Can any of the company-specific risk be diversified away by investing in both Brent Crude and E Mini 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 E Mini 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 E Mini SP 500, you can compare the effects of market volatilities on Brent Crude and E Mini 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 E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brent Crude and E Mini.
Diversification Opportunities for Brent Crude and E Mini
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Brent and ESUSD is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP 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 E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Brent Crude i.e., Brent Crude and E Mini go up and down completely randomly.
Pair Corralation between Brent Crude and E Mini
Assuming the 90 days horizon Brent Crude Oil is expected to generate 1.75 times more return on investment than E Mini. However, Brent Crude is 1.75 times more volatile than E Mini SP 500. It trades about 0.34 of its potential returns per unit of risk. E Mini SP 500 is currently generating about 0.03 per unit of risk. If you would invest 7,232 in Brent Crude Oil on October 22, 2024 and sell it today you would earn a total of 755.00 from holding Brent Crude Oil or generate 10.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Brent Crude Oil vs. E Mini SP 500
Performance |
| Timeline |
| Brent Crude Oil |
| E Mini SP |
Brent Crude and E Mini Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brent Crude and E Mini
The main advantage of trading using opposite Brent Crude and E Mini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brent Crude position performs unexpectedly, E Mini 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 E Mini will offset losses from the drop in E Mini's long position.| Brent Crude vs. Cocoa | Brent Crude vs. Orange Juice | Brent Crude vs. US Dollar | Brent Crude vs. Five Year Treasury Note |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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