Correlation Between US Dollar and Aluminum Futures
Can any of the company-specific risk be diversified away by investing in both US Dollar 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 US Dollar and Aluminum Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Dollar and Aluminum Futures, you can compare the effects of market volatilities on US Dollar 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 US Dollar with a short position of Aluminum Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Dollar and Aluminum Futures.
Diversification Opportunities for US Dollar and Aluminum Futures
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between DXUSD and Aluminum is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding US Dollar and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures and US Dollar 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 US Dollar 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 US Dollar i.e., US Dollar and Aluminum Futures go up and down completely randomly.
Pair Corralation between US Dollar and Aluminum Futures
Assuming the 90 days horizon US Dollar is expected to generate 4.71 times less return on investment than Aluminum Futures. But when comparing it to its historical volatility, US Dollar is 3.1 times less risky than Aluminum Futures. It trades about 0.22 of its potential returns per unit of risk. Aluminum Futures is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 248,100 in Aluminum Futures on October 21, 2024 and sell it today you would earn a total of 20,575 from holding Aluminum Futures or generate 8.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Dollar vs. Aluminum Futures
Performance |
| Timeline |
| US Dollar |
| Aluminum Futures |
US Dollar and Aluminum Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Dollar and Aluminum Futures
The main advantage of trading using opposite US Dollar and Aluminum Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Dollar 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.| US Dollar vs. Cocoa | US Dollar vs. Silver Futures | US Dollar vs. Five Year Treasury Note | US Dollar 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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