Correlation Between 30 Year and Live Cattle

Can any of the company-specific risk be diversified away by investing in both 30 Year 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 30 Year and Live Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 30 Year Treasury and Live Cattle Futures, you can compare the effects of market volatilities on 30 Year 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 30 Year with a short position of Live Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of 30 Year and Live Cattle.

Diversification Opportunities for 30 Year and Live Cattle

-0.06

Correlation Coefficient

30 Year  Live Cattle

Good diversification

The 3 months correlation between ZBUSD and Live is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding 30 Year Treasury 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 30 Year 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 30 Year Treasury 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 30 Year i.e., 30 Year and Live Cattle go up and down completely randomly.

Pair Corralation between 30 Year and Live Cattle

Assuming the 90 days horizon 30 Year is expected to generate 4.14 times less return on investment than Live Cattle. But when comparing it to its historical volatility, 30 Year Treasury is 1.56 times less risky than Live Cattle. It trades about 0.04 of its potential returns per unit of risk. Live Cattle Futures is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  19,030  in Live Cattle Futures on December 28, 2024 and sell it today you would earn a total of  1,150  from holding Live Cattle Futures or generate 6.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

30 Year Treasury  vs.  Live Cattle Futures

30 Year Treasury

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 30 Year Treasury are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, 30 Year is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 unsteady basic indicators, Live Cattle may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with 30 Year and Live Cattle

The main advantage of trading using opposite 30 Year and Live Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 30 Year 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 30 Year Treasury 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.