Correlation Between Crude Oil and Sugar

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

By analyzing existing cross correlation between Crude Oil and Sugar, you can compare the effects of market volatilities on Crude Oil and Sugar 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 Sugar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crude Oil and Sugar.

Diversification Opportunities for Crude Oil and Sugar

0.33

Correlation Coefficient

Crude Oil  Sugar

Weak diversification

The 3 months correlation between Crude and Sugar is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Crude Oil and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar 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 Sugar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sugar has no effect on the direction of Crude Oil i.e., Crude Oil and Sugar go up and down completely randomly.

Pair Corralation between Crude Oil and Sugar

Assuming the 90 days horizon Crude Oil is expected to generate 3.22 times less return on investment than Sugar. In addition to that, Crude Oil is 1.16 times more volatile than Sugar. It trades about 0.03 of its total potential returns per unit of risk. Sugar is currently generating about 0.11 per unit of volatility. If you would invest  1,901  in Sugar on September 13, 2024 and sell it today you would earn a total of  231.00  from holding Sugar or generate 12.15% return on investment over 90 days.

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

Crude Oil  vs.  Sugar

Crude Oil

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Crude Oil are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Crude Oil is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sugar

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sugar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Sugar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Crude Oil and Sugar

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

The idea behind Crude Oil and Sugar 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.