Correlation Between Micro E and Lean Hogs

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

By analyzing existing cross correlation between Micro E mini Russell and Lean Hogs Futures, you can compare the effects of market volatilities on Micro E and Lean Hogs 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 Micro E with a short position of Lean Hogs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro E and Lean Hogs.

Diversification Opportunities for Micro E and Lean Hogs

-0.23

Correlation Coefficient

Micro E  Lean Hogs

Very good diversification

The 3 months correlation between Micro and Lean is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Micro E mini Russell and Lean Hogs Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lean Hogs Futures and Micro E 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 Micro E mini Russell are associated (or correlated) with Lean Hogs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lean Hogs Futures has no effect on the direction of Micro E i.e., Micro E and Lean Hogs go up and down completely randomly.

Pair Corralation between Micro E and Lean Hogs

Assuming the 90 days trading horizon Micro E mini Russell is expected to under-perform the Lean Hogs. But the commodity apears to be less risky and, when comparing its historical volatility, Micro E mini Russell is 1.17 times less risky than Lean Hogs. The commodity trades about -0.13 of its potential returns per unit of risk. The Lean Hogs Futures is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,163  in Lean Hogs Futures on December 29, 2024 and sell it today you would earn a total of  507.00  from holding Lean Hogs Futures or generate 6.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Micro E mini Russell  vs.  Lean Hogs Futures

Micro E mini

Risk-Adjusted Performance

Very Weak

Over the last 90 days Micro E mini Russell 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 sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Micro E mini Russell shareholders.

Lean Hogs Futures

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lean Hogs Futures are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Lean Hogs may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Micro E and Lean Hogs

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

The idea behind Micro E mini Russell and Lean Hogs 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.