Correlation Between Aluminum Futures and US Dollar

Can any of the company-specific risk be diversified away by investing in both Aluminum Futures and US Dollar 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 Aluminum Futures and US Dollar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aluminum Futures and US Dollar, you can compare the effects of market volatilities on Aluminum Futures and US Dollar 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 Aluminum Futures with a short position of US Dollar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminum Futures and US Dollar.

Diversification Opportunities for Aluminum Futures and US Dollar

-0.12

Correlation Coefficient

Aluminum Futures  US Dollar

Good diversification

The 3 months correlation between Aluminum and DXUSD is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum Futures and US Dollar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Dollar and Aluminum Futures 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 Aluminum Futures are associated (or correlated) with US Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Dollar has no effect on the direction of Aluminum Futures i.e., Aluminum Futures and US Dollar go up and down completely randomly.

Pair Corralation between Aluminum Futures and US Dollar

Assuming the 90 days trading horizon Aluminum Futures is expected to generate 2.32 times more return on investment than US Dollar. However, Aluminum Futures is 2.32 times more volatile than US Dollar. It trades about -0.04 of its potential returns per unit of risk. US Dollar is currently generating about -0.13 per unit of risk. If you would invest  254,525  in Aluminum Futures on December 30, 2024 and sell it today you would lose (8,575) from holding Aluminum Futures or give up 3.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Aluminum Futures  vs.  US Dollar

Aluminum Futures

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aluminum Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Aluminum Futures is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

US Dollar

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Dollar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, US Dollar is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aluminum Futures and US Dollar

The main advantage of trading using opposite Aluminum Futures and US Dollar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminum Futures position performs unexpectedly, US Dollar 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 US Dollar will offset losses from the drop in US Dollar's long position.

The idea behind Aluminum Futures and US Dollar pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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..