Correlation Between Wheat Futures and Gasoline RBOB

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

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

Diversification Opportunities for Wheat Futures and Gasoline RBOB

0.27

Correlation Coefficient

Wheat Futures  Gasoline RBOB

Modest diversification

The 3 months correlation between Wheat and Gasoline is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures and Gasoline RBOB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gasoline RBOB and Wheat Futures 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 Wheat Futures are associated (or correlated) with Gasoline RBOB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gasoline RBOB has no effect on the direction of Wheat Futures i.e., Wheat Futures and Gasoline RBOB go up and down completely randomly.

Pair Corralation between Wheat Futures and Gasoline RBOB

Assuming the 90 days horizon Wheat Futures is expected to generate 0.78 times more return on investment than Gasoline RBOB. However, Wheat Futures is 1.28 times less risky than Gasoline RBOB. It trades about -0.03 of its potential returns per unit of risk. Gasoline RBOB is currently generating about -0.05 per unit of risk. If you would invest  56,525  in Wheat Futures on August 30, 2024 and sell it today you would lose (2,075) from holding Wheat Futures or give up 3.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Wheat Futures  vs.  Gasoline RBOB

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 current stock price disturbance, may contribute to short-term losses for the investors.

Gasoline RBOB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gasoline RBOB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Commodity's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Gasoline RBOB shareholders.

Pair Trading with Wheat Futures and Gasoline RBOB

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

The idea behind Wheat Futures and Gasoline RBOB 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.