Correlation Between Aluminum Futures and E Mini

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

By analyzing existing cross correlation between Aluminum Futures and E Mini SP 500, you can compare the effects of market volatilities on Aluminum Futures and E Mini 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 Aluminum Futures with a short position of E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminum Futures and E Mini.

Diversification Opportunities for Aluminum Futures and E Mini

0.86

Correlation Coefficient

Aluminum Futures  E Mini

Very poor diversification

The 3 months correlation between Aluminum and ESUSD is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum Futures and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP and Aluminum 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 Aluminum Futures are associated (or correlated) with E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Aluminum Futures i.e., Aluminum Futures and E Mini go up and down completely randomly.

Pair Corralation between Aluminum Futures and E Mini

Assuming the 90 days trading horizon Aluminum Futures is expected to generate 1.21 times less return on investment than E Mini. In addition to that, Aluminum Futures is 1.73 times more volatile than E Mini SP 500. It trades about 0.04 of its total potential returns per unit of risk. E Mini SP 500 is currently generating about 0.09 per unit of volatility. If you would invest  526,025  in E Mini SP 500 on July 8, 2024 and sell it today you would earn a total of  53,975  from holding E Mini SP 500 or generate 10.26% return on investment over 90 days.

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

Aluminum Futures  vs.  E Mini SP 500

Aluminum Futures

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum Futures are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Aluminum Futures is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

E Mini SP

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in E Mini SP 500 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, E Mini is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aluminum Futures and E Mini

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

The idea behind Aluminum Futures and E Mini SP 500 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.