Correlation Between Silver Futures and Live Cattle

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

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

Diversification Opportunities for Silver Futures and Live Cattle

0.38

Correlation Coefficient

Silver Futures  Live Cattle

Weak diversification

The 3 months correlation between Silver and Live is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Silver Futures and Live Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Cattle 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 Live Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Cattle Futures has no effect on the direction of Silver Futures i.e., Silver Futures and Live Cattle go up and down completely randomly.

Pair Corralation between Silver Futures and Live Cattle

Assuming the 90 days horizon Silver Futures is expected to generate 1.66 times more return on investment than Live Cattle. However, Silver Futures is 1.66 times more volatile than Live Cattle Futures. It trades about 0.2 of its potential returns per unit of risk. Live Cattle Futures is currently generating about 0.11 per unit of risk. If you would invest  2,941  in Silver Futures on December 28, 2024 and sell it today you would earn a total of  591.00  from holding Silver Futures or generate 20.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Silver Futures  vs.  Live Cattle Futures

Silver Futures

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Silver Futures are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Silver Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Live Cattle Futures

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Live Cattle Futures are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Live Cattle is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Silver Futures and Live Cattle

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

The idea behind Silver Futures and Live Cattle 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..