Correlation Between Micro E and Aluminum Futures
Can any of the company-specific risk be diversified away by investing in both Micro E 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 E 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 E mini Russell and Aluminum Futures, you can compare the effects of market volatilities on Micro E 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 E with a short position of Aluminum Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro E and Aluminum Futures.
Diversification Opportunities for Micro E and Aluminum Futures
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Micro and Aluminum is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Micro E mini Russell and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures and Micro E 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 E mini Russell 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 E i.e., Micro E and Aluminum Futures go up and down completely randomly.
Pair Corralation between Micro E and Aluminum Futures
Assuming the 90 days trading horizon Micro E is expected to generate 2.16 times less return on investment than Aluminum Futures. But when comparing it to its historical volatility, Micro E mini Russell is 1.19 times less risky than Aluminum Futures. It trades about 0.03 of its potential returns per unit of risk. Aluminum Futures is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 257,450 in Aluminum Futures on October 22, 2024 and sell it today you would earn a total of 11,225 from holding Aluminum Futures or generate 4.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Micro E mini Russell vs. Aluminum Futures
Performance |
| Timeline |
| Micro E mini |
| Aluminum Futures |
Micro E and Aluminum Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Micro E and Aluminum Futures
The main advantage of trading using opposite Micro E and Aluminum Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro E 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 E vs. Aluminum Futures | Micro E vs. Heating Oil | Micro E vs. 30 Year Treasury | Micro E vs. E Mini SP 500 |
| Aluminum Futures vs. Cotton | Aluminum Futures vs. Corn Futures | Aluminum Futures vs. Micro E mini Russell | Aluminum Futures vs. Heating Oil |
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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