Correlation Between Brent Crude and Micro Silver

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

Diversification Opportunities for Brent Crude and Micro Silver

0.29

Correlation Coefficient

Brent Crude  Micro Silver

Modest diversification

The 3 months correlation between Brent and Micro is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil 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 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 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 Brent Crude i.e., Brent Crude and Micro Silver go up and down completely randomly.

Pair Corralation between Brent Crude and Micro Silver

Assuming the 90 days horizon Brent Crude Oil is expected to generate 0.91 times more return on investment than Micro Silver. However, Brent Crude Oil is 1.1 times less risky than Micro Silver. It trades about -0.12 of its potential returns per unit of risk. Micro Silver Futures is currently generating about -0.13 per unit of risk. If you would invest  7,466  in Brent Crude Oil on September 4, 2024 and sell it today you would lose (302.00) from holding Brent Crude Oil or give up 4.05% of portfolio value over 90 days.

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

Brent Crude Oil  vs.  Micro Silver Futures

Brent Crude Oil

Risk-Adjusted Performance

0 of 100

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Micro Silver Futures

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Silver Futures are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Micro Silver may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brent Crude and Micro Silver

The main advantage of trading using opposite Brent Crude and Micro Silver positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brent Crude 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 Brent Crude Oil 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.