Correlation Between Brent Crude and Micro E

Can any of the company-specific risk be diversified away by investing in both Brent Crude and Micro E 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 Micro E 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 Micro E mini Russell, you can compare the effects of market volatilities on Brent Crude and Micro E 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 Micro E. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brent Crude and Micro E.

Diversification Opportunities for Brent Crude and Micro E

0.79

Correlation Coefficient

Brent Crude  Micro E

Poor diversification

The 3 months correlation between Brent and Micro is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil and Micro E mini Russell in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro E mini 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 Micro E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro E mini has no effect on the direction of Brent Crude i.e., Brent Crude and Micro E go up and down completely randomly.

Pair Corralation between Brent Crude and Micro E

Assuming the 90 days horizon Brent Crude Oil is expected to generate 1.11 times more return on investment than Micro E. However, Brent Crude is 1.11 times more volatile than Micro E mini Russell. It trades about -0.03 of its potential returns per unit of risk. Micro E mini Russell is currently generating about -0.13 per unit of risk. If you would invest  7,399  in Brent Crude Oil on December 29, 2024 and sell it today you would lose (215.00) from holding Brent Crude Oil or give up 2.91% of portfolio value over 90 days.

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

Brent Crude Oil  vs.  Micro E mini Russell

Brent Crude Oil

Risk-Adjusted Performance

Very Weak

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

Micro E mini

Risk-Adjusted Performance

Very Weak

Over the last 90 days Micro E mini Russell has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Commodity's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Micro E mini Russell shareholders.

Pair Trading with Brent Crude and Micro E

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

The idea behind Brent Crude Oil and Micro E mini Russell 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 Transaction History module to view history of all your transactions and understand their impact on performance.