Correlation Between E Mini and Feeder Cattle

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

By analyzing existing cross correlation between E Mini SP 500 and Feeder Cattle Futures, you can compare the effects of market volatilities on E Mini and Feeder Cattle 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 E Mini with a short position of Feeder Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of E Mini and Feeder Cattle.

Diversification Opportunities for E Mini and Feeder Cattle

-0.55

Correlation Coefficient

E Mini  Feeder Cattle

Excellent diversification

The 3 months correlation between ESUSD and Feeder is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding E Mini SP 500 and Feeder Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feeder Cattle Futures and E Mini 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 E Mini SP 500 are associated (or correlated) with Feeder Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feeder Cattle Futures has no effect on the direction of E Mini i.e., E Mini and Feeder Cattle go up and down completely randomly.

Pair Corralation between E Mini and Feeder Cattle

Assuming the 90 days horizon E Mini SP 500 is expected to under-perform the Feeder Cattle. In addition to that, E Mini is 1.23 times more volatile than Feeder Cattle Futures. It trades about -0.06 of its total potential returns per unit of risk. Feeder Cattle Futures is currently generating about 0.2 per unit of volatility. If you would invest  25,930  in Feeder Cattle Futures on December 26, 2024 and sell it today you would earn a total of  2,768  from holding Feeder Cattle Futures or generate 10.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

E Mini SP 500  vs.  Feeder Cattle Futures

E Mini SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days E Mini SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, E Mini is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Feeder Cattle Futures

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Feeder Cattle Futures are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Feeder Cattle may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with E Mini and Feeder Cattle

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

The idea behind E Mini SP 500 and Feeder Cattle 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.