Correlation Between Class III and Sugar

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

By analyzing existing cross correlation between Class III Milk and Sugar, you can compare the effects of market volatilities on Class III 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 Class III with a short position of Sugar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and Sugar.

Diversification Opportunities for Class III and Sugar

0.05

Correlation Coefficient

Class III  Sugar

Significant diversification

The 3 months correlation between Class and Sugar is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar and Class III 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 Class III Milk 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 Class III i.e., Class III and Sugar go up and down completely randomly.

Pair Corralation between Class III and Sugar

Assuming the 90 days horizon Class III Milk is expected to generate 1.66 times more return on investment than Sugar. However, Class III is 1.66 times more volatile than Sugar. It trades about -0.03 of its potential returns per unit of risk. Sugar is currently generating about -0.15 per unit of risk. If you would invest  2,025  in Class III Milk on September 2, 2024 and sell it today you would lose (39.00) from holding Class III Milk or give up 1.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Class III Milk  vs.  Sugar

Class III Milk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Class III Milk 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 Class III Milk shareholders.

Sugar

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sugar are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Sugar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Class III and Sugar

The main advantage of trading using opposite Class III and Sugar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Class III 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 Class III Milk 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.