Correlation Between Palladium and Soybean Meal

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

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

Diversification Opportunities for Palladium and Soybean Meal

-0.12

Correlation Coefficient

Palladium  Soybean Meal

Good diversification

The 3 months correlation between Palladium and Soybean is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Palladium and Soybean Meal Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soybean Meal Futures and Palladium 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 Palladium are associated (or correlated) with Soybean Meal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soybean Meal Futures has no effect on the direction of Palladium i.e., Palladium and Soybean Meal go up and down completely randomly.

Pair Corralation between Palladium and Soybean Meal

Assuming the 90 days horizon Palladium is expected to generate 1.31 times more return on investment than Soybean Meal. However, Palladium is 1.31 times more volatile than Soybean Meal Futures. It trades about 0.08 of its potential returns per unit of risk. Soybean Meal Futures is currently generating about -0.05 per unit of risk. If you would invest  90,110  in Palladium on December 30, 2024 and sell it today you would earn a total of  8,370  from holding Palladium or generate 9.29% return on investment over 90 days.

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

Palladium  vs.  Soybean Meal Futures

Palladium

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palladium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Palladium may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Soybean Meal Futures

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Palladium and Soybean Meal

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

The idea behind Palladium and Soybean Meal 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 Transaction History module to view history of all your transactions and understand their impact on performance.