Correlation Between Brent Crude and Copper
Can any of the company-specific risk be diversified away by investing in both Brent Crude 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 Brent Crude and Copper into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brent Crude Oil and Copper, you can compare the effects of market volatilities on Brent Crude 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 Brent Crude with a short position of Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brent Crude and Copper.
Diversification Opportunities for Brent Crude and Copper
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Brent and Copper is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil and Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copper and Brent Crude 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 Brent Crude Oil 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 Brent Crude i.e., Brent Crude and Copper go up and down completely randomly.
Pair Corralation between Brent Crude and Copper
Assuming the 90 days horizon Brent Crude Oil is expected to under-perform the Copper. But the commodity apears to be less risky and, when comparing its historical volatility, Brent Crude Oil is 1.11 times less risky than Copper. The commodity trades about -0.01 of its potential returns per unit of risk. The Copper is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 409.00 in Copper on December 28, 2024 and sell it today you would earn a total of 102.00 from holding Copper or generate 24.94% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 98.44% |
Values | Daily Returns |
Brent Crude Oil vs. Copper
Performance |
Timeline |
Brent Crude Oil |
Copper |
Brent Crude and Copper Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Brent Crude and Copper
The main advantage of trading using opposite Brent Crude and Copper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brent Crude 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.Brent Crude vs. Corn Futures | Brent Crude vs. Lumber Futures | Brent Crude vs. Orange Juice | Brent Crude vs. Natural Gas |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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