Correlation Between Aluminum Futures and Corn Futures

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

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

Diversification Opportunities for Aluminum Futures and Corn Futures

0.53

Correlation Coefficient

Aluminum Futures  Corn Futures

Very weak diversification

The 3 months correlation between Aluminum and Corn is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum Futures and Corn Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corn 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 Corn Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corn Futures has no effect on the direction of Aluminum Futures i.e., Aluminum Futures and Corn Futures go up and down completely randomly.

Pair Corralation between Aluminum Futures and Corn Futures

Assuming the 90 days trading horizon Aluminum Futures is expected to generate 1.71 times more return on investment than Corn Futures. However, Aluminum Futures is 1.71 times more volatile than Corn Futures. It trades about 0.11 of its potential returns per unit of risk. Corn Futures is currently generating about 0.06 per unit of risk. If you would invest  229,450  in Aluminum Futures on September 3, 2024 and sell it today you would earn a total of  29,300  from holding Aluminum Futures or generate 12.77% return on investment over 90 days.

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

Aluminum Futures  vs.  Corn Futures

Aluminum Futures

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum Futures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, Aluminum Futures may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Corn Futures

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Corn Futures are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Corn Futures is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aluminum Futures and Corn Futures

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

The idea behind Aluminum Futures and Corn 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..