Correlation Between Micro Silver and Silver Futures

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

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

Diversification Opportunities for Micro Silver and Silver Futures

1.0

Correlation Coefficient

Micro Silver  Silver Futures

No risk reduction

The 3 months correlation between Micro and Silver is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Micro Silver Futures and Silver Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Futures and Micro Silver 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 Micro Silver Futures are associated (or correlated) with Silver Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Futures has no effect on the direction of Micro Silver i.e., Micro Silver and Silver Futures go up and down completely randomly.

Pair Corralation between Micro Silver and Silver Futures

Assuming the 90 days trading horizon Micro Silver is expected to generate 1.09 times less return on investment than Silver Futures. In addition to that, Micro Silver is 1.0 times more volatile than Silver Futures. It trades about 0.01 of its total potential returns per unit of risk. Silver Futures is currently generating about 0.01 per unit of volatility. If you would invest  3,114  in Silver Futures on September 15, 2024 and sell it today you would lose (11.00) from holding Silver Futures or give up 0.35% of portfolio value over 90 days.

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

Micro Silver Futures  vs.  Silver Futures

Micro Silver Futures

Risk-Adjusted Performance

0 of 100

Very Weak

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

Silver Futures

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Micro Silver and Silver Futures

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

The idea behind Micro Silver Futures and 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.