Correlation Between Live Cattle and 2 Year

Can any of the company-specific risk be diversified away by investing in both Live Cattle and 2 Year 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 Live Cattle and 2 Year into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Live Cattle Futures and 2 Year T Note Futures, you can compare the effects of market volatilities on Live Cattle and 2 Year 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 Live Cattle with a short position of 2 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Cattle and 2 Year.

Diversification Opportunities for Live Cattle and 2 Year

0.1

Correlation Coefficient

Live Cattle  2 Year

Average diversification

The 3 months correlation between Live and ZTUSD is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Live Cattle Futures and 2 Year T Note Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2 Year T and Live Cattle 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 Live Cattle Futures are associated (or correlated) with 2 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2 Year T has no effect on the direction of Live Cattle i.e., Live Cattle and 2 Year go up and down completely randomly.

Pair Corralation between Live Cattle and 2 Year

Assuming the 90 days horizon Live Cattle Futures is expected to generate 9.82 times more return on investment than 2 Year. However, Live Cattle is 9.82 times more volatile than 2 Year T Note Futures. It trades about 0.11 of its potential returns per unit of risk. 2 Year T Note Futures is currently generating about 0.1 per unit of risk. If you would invest  19,030  in Live Cattle Futures on December 28, 2024 and sell it today you would earn a total of  1,150  from holding Live Cattle Futures or generate 6.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Live Cattle Futures  vs.  2 Year T Note Futures

Live Cattle Futures

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Live Cattle Futures are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Live Cattle may actually be approaching a critical reversion point that can send shares even higher in April 2025.

2 Year T

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 2 Year T Note Futures are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, 2 Year is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Live Cattle and 2 Year

The main advantage of trading using opposite Live Cattle and 2 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Live Cattle position performs unexpectedly, 2 Year 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 2 Year will offset losses from the drop in 2 Year's long position.

The idea behind Live Cattle Futures and 2 Year T Note 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.