Correlation Between Micro E and Rough Rice

Can any of the company-specific risk be diversified away by investing in both Micro E and Rough Rice 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 Rough Rice 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 Rough Rice Futures, you can compare the effects of market volatilities on Micro E and Rough Rice 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 Rough Rice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro E and Rough Rice.

Diversification Opportunities for Micro E and Rough Rice

0.62

Correlation Coefficient

Micro E  Rough Rice

Poor diversification

The 3 months correlation between Micro and Rough is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Micro E mini Russell and Rough Rice Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rough Rice 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 Rough Rice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rough Rice Futures has no effect on the direction of Micro E i.e., Micro E and Rough Rice go up and down completely randomly.

Pair Corralation between Micro E and Rough Rice

Assuming the 90 days trading horizon Micro E mini Russell is expected to under-perform the Rough Rice. But the commodity apears to be less risky and, when comparing its historical volatility, Micro E mini Russell is 1.01 times less risky than Rough Rice. The commodity trades about -0.12 of its potential returns per unit of risk. The Rough Rice Futures is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,384  in Rough Rice Futures on December 30, 2024 and sell it today you would lose (33.00) from holding Rough Rice Futures or give up 2.38% of portfolio value over 90 days.

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

Micro E mini Russell  vs.  Rough Rice 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.

Rough Rice Futures

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Micro E and Rough Rice

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

The idea behind Micro E mini Russell and Rough Rice 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.

Check out your portfolio center.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.