Correlation Between Lumber Futures and Nu-Med Plus

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

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

Diversification Opportunities for Lumber Futures and Nu-Med Plus

-0.56

Correlation Coefficient

Lumber Futures  Nu-Med Plus

Excellent diversification

The 3 months correlation between Lumber and Nu-Med is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Lumber Futures and Nu Med Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nu Med Plus and Lumber 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 Lumber Futures are associated (or correlated) with Nu-Med Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nu Med Plus has no effect on the direction of Lumber Futures i.e., Lumber Futures and Nu-Med Plus go up and down completely randomly.

Pair Corralation between Lumber Futures and Nu-Med Plus

Assuming the 90 days horizon Lumber Futures is expected to generate 0.15 times more return on investment than Nu-Med Plus. However, Lumber Futures is 6.71 times less risky than Nu-Med Plus. It trades about 0.09 of its potential returns per unit of risk. Nu Med Plus is currently generating about -0.07 per unit of risk. If you would invest  49,400  in Lumber Futures on October 22, 2024 and sell it today you would earn a total of  10,100  from holding Lumber Futures or generate 20.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Lumber Futures  vs.  Nu Med Plus

Lumber Futures

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lumber Futures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Lumber Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nu Med Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nu Med Plus has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Lumber Futures and Nu-Med Plus

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

The idea behind Lumber Futures and Nu Med Plus 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.