Correlation Between E Mini and Wheat Futures

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

Diversification Opportunities for E Mini and Wheat Futures

-0.58

Correlation Coefficient

E Mini  Wheat Futures

Excellent diversification

The 3 months correlation between ESUSD and Wheat is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding E Mini SP 500 and Wheat Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wheat 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 Wheat Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wheat Futures has no effect on the direction of E Mini i.e., E Mini and Wheat Futures go up and down completely randomly.

Pair Corralation between E Mini and Wheat Futures

Assuming the 90 days horizon E Mini SP 500 is expected to generate 0.4 times more return on investment than Wheat Futures. However, E Mini SP 500 is 2.52 times less risky than Wheat Futures. It trades about 0.18 of its potential returns per unit of risk. Wheat Futures is currently generating about -0.03 per unit of risk. If you would invest  560,225  in E Mini SP 500 on September 12, 2024 and sell it today you would earn a total of  44,950  from holding E Mini SP 500 or generate 8.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

E Mini SP 500  vs.  Wheat Futures

E Mini SP

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in E Mini SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, E Mini may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wheat Futures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wheat Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Wheat Futures is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with E Mini and Wheat Futures

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

The idea behind E Mini SP 500 and Wheat 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.