Correlation Between Five Year and Micro Silver

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

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

Diversification Opportunities for Five Year and Micro Silver

0.71

Correlation Coefficient

Five Year  Micro Silver

Poor diversification

The 3 months correlation between Five and Micro is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note 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 Five Year 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 Five Year Treasury Note 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 Five Year i.e., Five Year and Micro Silver go up and down completely randomly.

Pair Corralation between Five Year and Micro Silver

Assuming the 90 days horizon Five Year is expected to generate 24.87 times less return on investment than Micro Silver. But when comparing it to its historical volatility, Five Year Treasury Note is 7.11 times less risky than Micro Silver. It trades about 0.04 of its potential returns per unit of risk. Micro Silver Futures is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,019  in Micro Silver Futures on October 23, 2024 and sell it today you would earn a total of  133.00  from holding Micro Silver Futures or generate 4.41% return on investment over 90 days.

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

Five Year Treasury Note  vs.  Micro Silver Futures

Five Year Treasury

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 latest unsteady performance, the Commodity's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Micro Silver Futures shareholders.

Pair Trading with Five Year and Micro Silver

The main advantage of trading using opposite Five Year and Micro Silver positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year 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 Five Year Treasury Note 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.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.