Correlation Between Rough Rice and Lumber Futures

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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 Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Rough Rice Futures  vs.  Lumber Futures

 Performance 
       Timeline  
Rough Rice Futures 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Rough Rice Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rough Rice is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Lumber Futures 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Lumber Futures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Lumber Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.
The idea behind Rough Rice Futures and Lumber 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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