Correlation Between Fortescue Metals and Aluminum
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals and Aluminum 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 Fortescue Metals and Aluminum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortescue Metals Group and Aluminum of, you can compare the effects of market volatilities on Fortescue Metals and Aluminum 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 Fortescue Metals with a short position of Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Aluminum.
Diversification Opportunities for Fortescue Metals and Aluminum
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Fortescue and Aluminum is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Aluminum of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum and Fortescue Metals 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 Fortescue Metals Group are associated (or correlated) with Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminum has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Aluminum go up and down completely randomly.
Pair Corralation between Fortescue Metals and Aluminum
Assuming the 90 days horizon Fortescue Metals is expected to generate 6.26 times less return on investment than Aluminum. But when comparing it to its historical volatility, Fortescue Metals Group is 1.65 times less risky than Aluminum. It trades about 0.02 of its potential returns per unit of risk. Aluminum of is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 31.00 in Aluminum of on October 27, 2024 and sell it today you would earn a total of 32.00 from holding Aluminum of or generate 103.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. Aluminum of
Performance |
| Timeline |
| Fortescue Metals |
| Aluminum |
Fortescue Metals and Aluminum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and Aluminum
The main advantage of trading using opposite Fortescue Metals and Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals position performs unexpectedly, Aluminum 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 will offset losses from the drop in Aluminum's long position.| Fortescue Metals vs. SPORTING | Fortescue Metals vs. FANDIFI TECHNOLOGY P | Fortescue Metals vs. DICKS Sporting Goods | Fortescue Metals vs. Vishay Intertechnology |
| Aluminum vs. Mitsubishi Materials | Aluminum vs. Materialise NV | Aluminum vs. MHP Hotel AG | Aluminum vs. Sumitomo Rubber Industries |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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