Correlation Between Wheat Futures and Silver Futures

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

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

Diversification Opportunities for Wheat Futures and Silver Futures

0.26

Correlation Coefficient

Wheat Futures  Silver Futures

Modest diversification

The 3 months correlation between Wheat and Silver is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures and Silver Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Futures 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 Silver Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Futures has no effect on the direction of Wheat Futures i.e., Wheat Futures and Silver Futures go up and down completely randomly.

Pair Corralation between Wheat Futures and Silver Futures

Assuming the 90 days horizon Wheat Futures is expected to generate 1.06 times more return on investment than Silver Futures. However, Wheat Futures is 1.06 times more volatile than Silver Futures. It trades about 0.12 of its potential returns per unit of risk. Silver Futures is currently generating about 0.05 per unit of risk. If you would invest  53,300  in Wheat Futures on September 15, 2024 and sell it today you would earn a total of  2,400  from holding Wheat Futures or generate 4.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Wheat Futures  vs.  Silver Futures

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.

Silver Futures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Silver Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Silver Futures is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Wheat Futures and Silver Futures

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

The idea behind Wheat Futures and Silver 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.