Correlation Between Lumber Futures and Veltex

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

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

Diversification Opportunities for Lumber Futures and Veltex

-0.62

Correlation Coefficient

Lumber Futures  Veltex

Excellent diversification

The 3 months correlation between Lumber and Veltex is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Lumber Futures and Veltex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veltex 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 Veltex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veltex has no effect on the direction of Lumber Futures i.e., Lumber Futures and Veltex go up and down completely randomly.

Pair Corralation between Lumber Futures and Veltex

Assuming the 90 days horizon Lumber Futures is expected to under-perform the Veltex. But the commodity apears to be less risky and, when comparing its historical volatility, Lumber Futures is 5.09 times less risky than Veltex. The commodity trades about -0.32 of its potential returns per unit of risk. The Veltex is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  7.40  in Veltex on October 4, 2024 and sell it today you would lose (0.70) from holding Veltex or give up 9.46% of portfolio value over 90 days.

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

Lumber Futures  vs.  Veltex

Lumber Futures

Risk-Adjusted Performance

3 of 100

Insignificant

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

Veltex

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Lumber Futures and Veltex

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

The idea behind Lumber Futures and Veltex 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.