Correlation Between Aluminum Futures and Copper

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

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

Diversification Opportunities for Aluminum Futures and Copper

0.17

Correlation Coefficient

Aluminum Futures  Copper

Average diversification

The 3 months correlation between Aluminum and Copper is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum Futures and Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copper 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 Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copper has no effect on the direction of Aluminum Futures i.e., Aluminum Futures and Copper go up and down completely randomly.

Pair Corralation between Aluminum Futures and Copper

Assuming the 90 days trading horizon Aluminum Futures is expected to generate 1.21 times more return on investment than Copper. However, Aluminum Futures is 1.21 times more volatile than Copper. It trades about 0.08 of its potential returns per unit of risk. Copper is currently generating about 0.01 per unit of risk. If you would invest  238,000  in Aluminum Futures on September 13, 2024 and sell it today you would earn a total of  20,550  from holding Aluminum Futures or generate 8.63% return on investment over 90 days.

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

Aluminum Futures  vs.  Copper

Aluminum Futures

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum Futures are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Aluminum Futures may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Copper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Copper 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 Copper

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

The idea behind Aluminum Futures and Copper 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.