Correlation Between Heating Oil and US Dollar

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

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

Diversification Opportunities for Heating Oil and US Dollar

0.5

Correlation Coefficient

Heating Oil  US Dollar

Very weak diversification

The 3 months correlation between Heating and DXUSD is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Heating Oil and US Dollar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Dollar and Heating Oil 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 Heating Oil are associated (or correlated) with US Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Dollar has no effect on the direction of Heating Oil i.e., Heating Oil and US Dollar go up and down completely randomly.

Pair Corralation between Heating Oil and US Dollar

Assuming the 90 days horizon Heating Oil is expected to under-perform the US Dollar. In addition to that, Heating Oil is 4.65 times more volatile than US Dollar. It trades about -0.01 of its total potential returns per unit of risk. US Dollar is currently generating about 0.02 per unit of volatility. If you would invest  10,321  in US Dollar on December 2, 2024 and sell it today you would earn a total of  430.00  from holding US Dollar or generate 4.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.48%
Values	Daily Returns

Heating Oil  vs.  US Dollar

Heating Oil

Risk-Adjusted Performance

Modest

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

US Dollar

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in US Dollar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, US Dollar is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Heating Oil and US Dollar

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

The idea behind Heating Oil and US Dollar 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.