Correlation Between Aluminum Futures and Micro Silver

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

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

Diversification Opportunities for Aluminum Futures and Micro Silver

0.77

Correlation Coefficient

Aluminum Futures  Micro Silver

Poor diversification

The 3 months correlation between Aluminum and Micro is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum Futures and Micro Silver Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro Silver Futures 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 Micro Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Silver Futures has no effect on the direction of Aluminum Futures i.e., Aluminum Futures and Micro Silver go up and down completely randomly.

Pair Corralation between Aluminum Futures and Micro Silver

Assuming the 90 days trading horizon Aluminum Futures is expected to generate 0.89 times more return on investment than Micro Silver. However, Aluminum Futures is 1.12 times less risky than Micro Silver. It trades about 0.09 of its potential returns per unit of risk. Micro Silver Futures is currently generating about 0.05 per unit of risk. If you would invest  234,250  in Aluminum Futures on August 30, 2024 and sell it today you would earn a total of  23,200  from holding Aluminum Futures or generate 9.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Aluminum Futures  vs.  Micro Silver Futures

Aluminum Futures

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum Futures are ranked lower than 7 (%) 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 December 2024.

Micro Silver Futures

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Silver Futures are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Micro Silver is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aluminum Futures and Micro Silver

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

The idea behind Aluminum Futures and Micro Silver Futures 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.