Correlation Between Copper and Wheat Futures

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

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

Diversification Opportunities for Copper and Wheat Futures

0.8

Correlation Coefficient

Copper  Wheat Futures

Very poor diversification

The 3 months correlation between Copper and Wheat is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Copper and Wheat Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wheat Futures and Copper 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 Copper 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 Copper i.e., Copper and Wheat Futures go up and down completely randomly.

Pair Corralation between Copper and Wheat Futures

Assuming the 90 days horizon Copper is expected to generate 0.82 times more return on investment than Wheat Futures. However, Copper is 1.21 times less risky than Wheat Futures. It trades about 0.13 of its potential returns per unit of risk. Wheat Futures is currently generating about 0.07 per unit of risk. If you would invest  413.00  in Copper on December 2, 2024 and sell it today you would earn a total of  42.00  from holding Copper or generate 10.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Copper  vs.  Wheat Futures

Copper

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Copper are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Copper may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Wheat Futures

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wheat Futures are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Wheat Futures may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Copper and Wheat Futures

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

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.