Correlation Between Class III and Rough Rice

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

Diversification Opportunities for Class III and Rough Rice

-0.58

Correlation Coefficient

Class III  Rough Rice

Excellent diversification

The 3 months correlation between Class and Rough is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and Rough Rice Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rough Rice 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 Rough Rice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rough Rice Futures has no effect on the direction of Class III i.e., Class III and Rough Rice go up and down completely randomly.

Pair Corralation between Class III and Rough Rice

Assuming the 90 days horizon Class III Milk is expected to generate 1.74 times more return on investment than Rough Rice. However, Class III is 1.74 times more volatile than Rough Rice Futures. It trades about 0.02 of its potential returns per unit of risk. Rough Rice Futures is currently generating about -0.15 per unit of risk. If you would invest  1,986  in Class III Milk on November 28, 2024 and sell it today you would earn a total of  35.00  from holding Class III Milk or generate 1.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Class III Milk  vs.  Rough Rice Futures

Class III Milk

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Class III Milk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Class III is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Rough Rice Futures

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rough Rice Futures 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 Rough Rice Futures shareholders.

Pair Trading with Class III and Rough Rice

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

The idea behind Class III Milk and Rough Rice 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..