Correlation Between Class III and Corn Futures

Can any of the company-specific risk be diversified away by investing in both Class III 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 Class III and Corn Futures 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 Corn Futures, you can compare the effects of market volatilities on Class III 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 Class III with a short position of Corn Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and Corn Futures.

Diversification Opportunities for Class III and Corn Futures

-0.61

Correlation Coefficient

Class III  Corn Futures

Excellent diversification

The 3 months correlation between Class and Corn is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and Corn Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corn Futures 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 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 Class III i.e., Class III and Corn Futures go up and down completely randomly.

Pair Corralation between Class III and Corn Futures

Assuming the 90 days horizon Class III Milk is expected to generate 1.61 times more return on investment than Corn Futures. However, Class III is 1.61 times more volatile than Corn Futures. It trades about 0.05 of its potential returns per unit of risk. Corn Futures is currently generating about -0.03 per unit of risk. If you would invest  1,377  in Class III Milk on September 12, 2024 and sell it today you would earn a total of  506.00  from holding Class III Milk or generate 36.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.88%
Values	Daily Returns

Class III Milk  vs.  Corn Futures

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 weak performance in the last few months, the Commodity's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for Class III Milk shareholders.

Corn Futures

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Corn Futures are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Corn Futures may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Class III and Corn Futures

The main advantage of trading using opposite Class III and Corn Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Class III 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.

The idea behind Class III Milk and Corn Futures 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.