Correlation Between Gasoline RBOB and E Mini

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

By analyzing existing cross correlation between Gasoline RBOB and E Mini SP 500, you can compare the effects of market volatilities on Gasoline RBOB and E Mini 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 Gasoline RBOB with a short position of E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gasoline RBOB and E Mini.

Diversification Opportunities for Gasoline RBOB and E Mini

0.17

Correlation Coefficient

Gasoline RBOB  E Mini

Average diversification

The 3 months correlation between Gasoline and ESUSD is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Gasoline RBOB and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP and Gasoline RBOB 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 Gasoline RBOB are associated (or correlated) with E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Gasoline RBOB i.e., Gasoline RBOB and E Mini go up and down completely randomly.

Pair Corralation between Gasoline RBOB and E Mini

Assuming the 90 days horizon Gasoline RBOB is expected to under-perform the E Mini. In addition to that, Gasoline RBOB is 2.66 times more volatile than E Mini SP 500. It trades about -0.01 of its total potential returns per unit of risk. E Mini SP 500 is currently generating about 0.19 per unit of volatility. If you would invest  554,175  in E Mini SP 500 on September 3, 2024 and sell it today you would earn a total of  50,975  from holding E Mini SP 500 or generate 9.2% return on investment over 90 days.

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

Gasoline RBOB  vs.  E Mini SP 500

Gasoline RBOB

Risk-Adjusted Performance

0 of 100

Very Weak

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

E Mini SP

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in E Mini SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, E Mini may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Gasoline RBOB and E Mini

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

The idea behind Gasoline RBOB and E Mini SP 500 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.