Correlation Between Platinum and Lumber Futures

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

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

Diversification Opportunities for Platinum and Lumber Futures

-0.47

Correlation Coefficient

Platinum  Lumber Futures

Very good diversification

The 3 months correlation between Platinum and Lumber is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Platinum and Lumber Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumber Futures and Platinum 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 Platinum are associated (or correlated) with Lumber Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumber Futures has no effect on the direction of Platinum i.e., Platinum and Lumber Futures go up and down completely randomly.

Pair Corralation between Platinum and Lumber Futures

Assuming the 90 days horizon Platinum is expected to generate 0.79 times more return on investment than Lumber Futures. However, Platinum is 1.27 times less risky than Lumber Futures. It trades about -0.07 of its potential returns per unit of risk. Lumber Futures is currently generating about -0.07 per unit of risk. If you would invest  99,280  in Platinum on October 7, 2024 and sell it today you would lose (4,450) from holding Platinum or give up 4.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.35%
Values	Daily Returns

Platinum  vs.  Lumber Futures

Platinum

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lumber Futures

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lumber Futures are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Lumber Futures is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Platinum and Lumber Futures

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

The idea behind Platinum and Lumber 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 Global Correlations module to find global opportunities by holding instruments from different markets.