Correlation Between Oat Futures and Class III

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

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

Diversification Opportunities for Oat Futures and Class III

0.23

Correlation Coefficient

Oat Futures  Class III

Modest diversification

The 3 months correlation between Oat and Class is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Oat Futures 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 Oat 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 Oat Futures 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 Oat Futures i.e., Oat Futures and Class III go up and down completely randomly.

Pair Corralation between Oat Futures and Class III

Assuming the 90 days horizon Oat Futures is expected to under-perform the Class III. In addition to that, Oat Futures is 1.26 times more volatile than Class III Milk. It trades about -0.17 of its total potential returns per unit of risk. Class III Milk is currently generating about -0.03 per unit of volatility. If you would invest  2,025  in Class III Milk on September 2, 2024 and sell it today you would lose (39.00) from holding Class III Milk or give up 1.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Oat Futures  vs.  Class III Milk

Oat Futures

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oat Futures are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Oat Futures may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Class III Milk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Class III Milk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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 Class III Milk shareholders.

Pair Trading with Oat Futures and Class III

The main advantage of trading using opposite Oat Futures and Class III positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oat Futures 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 Oat Futures 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.

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