Correlation Between Heating Oil and Soybean Meal

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

By analyzing existing cross correlation between Heating Oil and Soybean Meal Futures, you can compare the effects of market volatilities on Heating Oil and Soybean Meal 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 Soybean Meal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heating Oil and Soybean Meal.

Diversification Opportunities for Heating Oil and Soybean Meal

0.06

Correlation Coefficient

Heating Oil  Soybean Meal

Significant diversification

The 3 months correlation between Heating and Soybean is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Heating Oil and Soybean Meal Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soybean Meal Futures 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 Soybean Meal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soybean Meal Futures has no effect on the direction of Heating Oil i.e., Heating Oil and Soybean Meal go up and down completely randomly.

Pair Corralation between Heating Oil and Soybean Meal

Assuming the 90 days horizon Heating Oil is expected to generate 0.98 times more return on investment than Soybean Meal. However, Heating Oil is 1.02 times less risky than Soybean Meal. It trades about 0.02 of its potential returns per unit of risk. Soybean Meal Futures is currently generating about 0.0 per unit of risk. If you would invest  222.00  in Heating Oil on December 24, 2024 and sell it today you would earn a total of  3.00  from holding Heating Oil or generate 1.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Heating Oil  vs.  Soybean Meal Futures

Heating Oil

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heating Oil are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Heating Oil is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Soybean Meal Futures

Risk-Adjusted Performance

Very Weak

Over the last 90 days Soybean Meal Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Soybean Meal 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 Soybean Meal

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

The idea behind Heating Oil and Soybean Meal 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.