Correlation Between Micro Gold and Aluminum Futures
Can any of the company-specific risk be diversified away by investing in both Micro Gold 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 Micro Gold and Aluminum Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Micro Gold Futures and Aluminum Futures, you can compare the effects of market volatilities on Micro Gold 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 Micro Gold with a short position of Aluminum Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro Gold and Aluminum Futures.
Diversification Opportunities for Micro Gold and Aluminum Futures
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Micro and Aluminum is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Micro Gold Futures and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures and Micro Gold 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 Micro Gold Futures 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 Micro Gold i.e., Micro Gold and Aluminum Futures go up and down completely randomly.
Pair Corralation between Micro Gold and Aluminum Futures
Assuming the 90 days trading horizon Micro Gold Futures is expected to under-perform the Aluminum Futures. But the commodity apears to be less risky and, when comparing its historical volatility, Micro Gold Futures is 1.51 times less risky than Aluminum Futures. The commodity trades about -0.14 of its potential returns per unit of risk. The Aluminum Futures is currently generating about -0.03 of returns per unit of risk over similar time horizon. 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 |
Micro Gold Futures vs. Aluminum Futures
Performance |
| Timeline |
| Micro Gold Futures |
| Aluminum Futures |
Micro Gold and Aluminum Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Micro Gold and Aluminum Futures
The main advantage of trading using opposite Micro Gold and Aluminum Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro Gold 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.| Micro Gold vs. Gold Futures | Micro Gold vs. Soybean Meal Futures | Micro Gold vs. Coffee | Micro Gold vs. Sugar |
| Aluminum Futures vs. Gasoline RBOB | Aluminum Futures vs. Rough Rice Futures | Aluminum Futures vs. Platinum | Aluminum Futures vs. Soybean Futures |
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 Stocks Directory module to find actively traded stocks across global markets.
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