Correlation Between Silver Futures and Aluminum Futures

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

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

Diversification Opportunities for Silver Futures and Aluminum Futures

0.77

Correlation Coefficient

Silver Futures  Aluminum Futures

Poor diversification

The 3 months correlation between Silver and Aluminum is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Silver Futures and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures and Silver Futures 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 Silver Futures are associated (or correlated) with Aluminum Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminum Futures has no effect on the direction of Silver Futures i.e., Silver Futures and Aluminum Futures go up and down completely randomly.

Pair Corralation between Silver Futures and Aluminum Futures

Assuming the 90 days horizon Silver Futures is expected to generate 1.49 times less return on investment than Aluminum Futures. In addition to that, Silver Futures is 1.11 times more volatile than Aluminum Futures. It trades about 0.07 of its total potential returns per unit of risk. Aluminum Futures is currently generating about 0.12 per unit of volatility. If you would invest  229,450  in Aluminum Futures on September 2, 2024 and sell it today you would earn a total of  31,000  from holding Aluminum Futures or generate 13.51% return on investment over 90 days.

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

Silver Futures  vs.  Aluminum Futures

Silver Futures

Risk-Adjusted Performance

5 of 100

Modest

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

Aluminum Futures

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum Futures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, Aluminum Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Silver Futures and Aluminum Futures

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

The idea behind Silver Futures and Aluminum 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.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.