Correlation Between Silver Futures and Wheat Futures

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

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

Diversification Opportunities for Silver Futures and Wheat Futures

0.75

Correlation Coefficient

Silver Futures  Wheat Futures

Poor diversification

The 3 months correlation between Silver and Wheat is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Silver Futures and Wheat Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wheat Futures and Silver Futures 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 Silver Futures are associated (or correlated) with Wheat Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wheat Futures has no effect on the direction of Silver Futures i.e., Silver Futures and Wheat Futures go up and down completely randomly.

Pair Corralation between Silver Futures and Wheat Futures

Assuming the 90 days horizon Silver Futures is expected to generate 2.29 times less return on investment than Wheat Futures. In addition to that, Silver Futures is 1.1 times more volatile than Wheat Futures. It trades about 0.03 of its total potential returns per unit of risk. Wheat Futures is currently generating about 0.07 per unit of volatility. If you would invest  54,050  in Wheat Futures on December 2, 2024 and sell it today you would earn a total of  3,250  from holding Wheat Futures or generate 6.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Silver Futures  vs.  Wheat Futures

Silver Futures

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Silver Futures are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Silver Futures is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Wheat Futures

Risk-Adjusted Performance

Modest

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

Pair Trading with Silver Futures and Wheat Futures

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

The idea behind Silver Futures and Wheat 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.