Correlation Between Crude Oil and Micro E

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

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

Diversification Opportunities for Crude Oil and Micro E

0.82

Correlation Coefficient

Crude Oil  Micro E

Very poor diversification

The 3 months correlation between Crude and Micro is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Crude Oil and Micro E mini Russell in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro E mini and Crude Oil 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 Crude Oil are associated (or correlated) with Micro E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro E mini has no effect on the direction of Crude Oil i.e., Crude Oil and Micro E go up and down completely randomly.

Pair Corralation between Crude Oil and Micro E

Assuming the 90 days horizon Crude Oil is expected to under-perform the Micro E. In addition to that, Crude Oil is 1.04 times more volatile than Micro E mini Russell. It trades about -0.15 of its total potential returns per unit of risk. Micro E mini Russell is currently generating about -0.1 per unit of volatility. If you would invest  220,170  in Micro E mini Russell on January 10, 2025 and sell it today you would lose (27,560) from holding Micro E mini Russell or give up 12.52% of portfolio value over 90 days.

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

Crude Oil  vs.  Micro E mini Russell

Crude Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Crude Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Commodity's basic indicators remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for Crude Oil shareholders.

Micro E mini

Risk-Adjusted Performance

Very Weak

Over the last 90 days Micro E mini Russell has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Commodity's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Micro E mini Russell shareholders.

Pair Trading with Crude Oil and Micro E

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

The idea behind Crude Oil and Micro E mini Russell 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.