Correlation Between Crude Oil and Corn Futures
Can any of the company-specific risk be diversified away by investing in both Crude Oil and Corn Futures 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 Corn Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Crude Oil and Corn Futures, you can compare the effects of market volatilities on Crude Oil and Corn Futures 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 Corn Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crude Oil and Corn Futures.
Diversification Opportunities for Crude Oil and Corn Futures
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Crude and Corn is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Crude Oil and Corn Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corn Futures 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 Corn Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corn Futures has no effect on the direction of Crude Oil i.e., Crude Oil and Corn Futures go up and down completely randomly.
Pair Corralation between Crude Oil and Corn Futures
Assuming the 90 days horizon Crude Oil is expected to under-perform the Corn Futures. In addition to that, Crude Oil is 2.04 times more volatile than Corn Futures. It trades about -0.05 of its total potential returns per unit of risk. Corn Futures is currently generating about 0.08 per unit of volatility. If you would invest 40,925 in Corn Futures on September 2, 2024 and sell it today you would earn a total of 2,375 from holding Corn Futures or generate 5.8% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 98.48% |
Values | Daily Returns |
Crude Oil vs. Corn Futures
Performance |
Timeline |
Crude Oil |
Corn Futures |
Crude Oil and Corn Futures Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Crude Oil and Corn Futures
The main advantage of trading using opposite Crude Oil and Corn Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crude Oil position performs unexpectedly, Corn Futures 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 Corn Futures will offset losses from the drop in Corn Futures' long position.Crude Oil vs. Feeder Cattle Futures | Crude Oil vs. Micro Silver Futures | Crude Oil vs. 30 Day Fed | Crude Oil vs. Mini Dow Jones |
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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