Correlation Between Mini Dow and Copper

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

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

Diversification Opportunities for Mini Dow and Copper

-0.38

Correlation Coefficient

Mini Dow  Copper

Very good diversification

The 3 months correlation between Mini and Copper is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Mini Dow Jones and Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copper and Mini Dow 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 Mini Dow Jones are associated (or correlated) with Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copper has no effect on the direction of Mini Dow i.e., Mini Dow and Copper go up and down completely randomly.

Pair Corralation between Mini Dow and Copper

Assuming the 90 days horizon Mini Dow Jones is expected to under-perform the Copper. But the commodity apears to be less risky and, when comparing its historical volatility, Mini Dow Jones is 1.72 times less risky than Copper. The commodity trades about -0.03 of its potential returns per unit of risk. The Copper is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  413.00  in Copper on December 26, 2024 and sell it today you would earn a total of  109.00  from holding Copper or generate 26.39% return on investment over 90 days.

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

Mini Dow Jones  vs.  Copper

Mini Dow Jones

Risk-Adjusted Performance

Very Weak

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

Copper

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Copper are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Copper exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mini Dow and Copper

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

The idea behind Mini Dow Jones and Copper 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.