Correlation Between Sugar and Class III

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

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

Diversification Opportunities for Sugar and Class III

-0.49

Correlation Coefficient

Sugar  Class III

Very good diversification

The 3 months correlation between Sugar and Class is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Sugar and Class III Milk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Class III Milk and Sugar 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 Sugar are associated (or correlated) with Class III. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Class III Milk has no effect on the direction of Sugar i.e., Sugar and Class III go up and down completely randomly.

Pair Corralation between Sugar and Class III

Assuming the 90 days horizon Sugar is expected to generate 0.8 times more return on investment than Class III. However, Sugar is 1.26 times less risky than Class III. It trades about 0.01 of its potential returns per unit of risk. Class III Milk is currently generating about -0.17 per unit of risk. If you would invest  1,947  in Sugar on December 1, 2024 and sell it today you would earn a total of  4.00  from holding Sugar or generate 0.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Sugar  vs.  Class III Milk

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 weak 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.

Class III Milk

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Class III Milk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Class III is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sugar and Class III

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

The idea behind Sugar and Class III Milk 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.