Correlation Between Rough Rice and Lumber Futures
Can any of the company-specific risk be diversified away by investing in both Rough Rice and Lumber 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 Rough Rice and Lumber Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rough Rice Futures and Lumber Futures, you can compare the effects of market volatilities on Rough Rice and Lumber 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 Rough Rice with a short position of Lumber Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rough Rice and Lumber Futures.
Diversification Opportunities for Rough Rice and Lumber Futures
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Rough and Lumber is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Rough Rice Futures and Lumber Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumber Futures and Rough Rice 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 Rough Rice Futures are associated (or correlated) with Lumber Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumber Futures has no effect on the direction of Rough Rice i.e., Rough Rice and Lumber Futures go up and down completely randomly.
Pair Corralation between Rough Rice and Lumber Futures
Assuming the 90 days horizon Rough Rice Futures is expected to generate 0.55 times more return on investment than Lumber Futures. However, Rough Rice Futures is 1.82 times less risky than Lumber Futures. It trades about 0.25 of its potential returns per unit of risk. Lumber Futures is currently generating about 0.1 per unit of risk. If you would invest 1,411 in Rough Rice Futures on October 22, 2024 and sell it today you would earn a total of 70.00 from holding Rough Rice Futures or generate 4.96% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Rough Rice Futures vs. Lumber Futures
Performance |
Timeline |
Rough Rice Futures |
Lumber Futures |
Rough Rice and Lumber Futures Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Rough Rice and Lumber Futures
The main advantage of trading using opposite Rough Rice and Lumber Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rough Rice position performs unexpectedly, Lumber 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 Lumber Futures will offset losses from the drop in Lumber Futures' long position.Rough Rice vs. 30 Year Treasury | Rough Rice vs. 2 Year T Note Futures | Rough Rice vs. Orange Juice | Rough Rice vs. Heating Oil |
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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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