Correlation Between Natural Gas and Sugar

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

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

Diversification Opportunities for Natural Gas and Sugar

-0.33

Correlation Coefficient

Natural Gas  Sugar

Very good diversification

The 3 months correlation between Natural and Sugar is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar and Natural Gas 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 Natural Gas are associated (or correlated) with Sugar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sugar has no effect on the direction of Natural Gas i.e., Natural Gas and Sugar go up and down completely randomly.

Pair Corralation between Natural Gas and Sugar

Assuming the 90 days horizon Natural Gas is expected to generate 2.44 times more return on investment than Sugar. However, Natural Gas is 2.44 times more volatile than Sugar. It trades about 0.04 of its potential returns per unit of risk. Sugar is currently generating about 0.0 per unit of risk. If you would invest  261.00  in Natural Gas on December 2, 2024 and sell it today you would earn a total of  122.00  from holding Natural Gas or generate 46.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.66%
Values	Daily Returns

Natural Gas  vs.  Sugar

Natural Gas

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Natural Gas exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sugar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sugar 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for Sugar investors.

Pair Trading with Natural Gas and Sugar

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

The idea behind Natural Gas and Sugar 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.