Correlation Between Natural Gas and International Agricultural

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

By analyzing existing cross correlation between Natural Gas Mining and International Agricultural Products, you can compare the effects of market volatilities on Natural Gas and International Agricultural 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 Natural Gas with a short position of International Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Gas and International Agricultural.

Diversification Opportunities for Natural Gas and International Agricultural

-0.18

Correlation Coefficient

Natural Gas  International Agricultural

Good diversification

The 3 months correlation between Natural and International is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas Mining and International Agricultural Pro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Agricultural and Natural Gas 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 Natural Gas Mining are associated (or correlated) with International Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Agricultural has no effect on the direction of Natural Gas i.e., Natural Gas and International Agricultural go up and down completely randomly.

Pair Corralation between Natural Gas and International Agricultural

Assuming the 90 days trading horizon Natural Gas Mining is expected to under-perform the International Agricultural. In addition to that, Natural Gas is 1.09 times more volatile than International Agricultural Products. It trades about -0.14 of its total potential returns per unit of risk. International Agricultural Products is currently generating about 0.22 per unit of volatility. If you would invest  1,473  in International Agricultural Products on October 15, 2024 and sell it today you would earn a total of  413.00  from holding International Agricultural Products or generate 28.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Natural Gas Mining  vs.  International Agricultural Pro

Natural Gas Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Natural Gas Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

International Agricultural

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Agricultural Products are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, International Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Natural Gas and International Agricultural

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

The idea behind Natural Gas Mining and International Agricultural Products 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.