Correlation Between Sugar and Soybean Meal

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

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

Diversification Opportunities for Sugar and Soybean Meal

0.13

Correlation Coefficient

Sugar  Soybean Meal

Average diversification

The 3 months correlation between Sugar and Soybean is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sugar 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 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 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 Sugar i.e., Sugar and Soybean Meal go up and down completely randomly.

Pair Corralation between Sugar and Soybean Meal

Assuming the 90 days horizon Sugar is expected to generate 1.31 times more return on investment than Soybean Meal. However, Sugar 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 -0.13 per unit of risk. If you would invest  2,193  in Sugar on September 5, 2024 and sell it today you would lose (59.00) from holding Sugar or give up 2.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Sugar  vs.  Soybean Meal Futures

Sugar

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sugar are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Sugar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Soybean Meal Futures

Risk-Adjusted Performance

0 of 100

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 latest weak 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 Soybean Meal Futures shareholders.

Pair Trading with Sugar and Soybean Meal

The main advantage of trading using opposite Sugar and Soybean Meal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sugar 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 Sugar 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.