Correlation Between Brent Crude and Lumber Futures
Can any of the company-specific risk be diversified away by investing in both Brent Crude 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 Brent Crude and Lumber Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brent Crude Oil and Lumber Futures, you can compare the effects of market volatilities on Brent Crude 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 Brent Crude with a short position of Lumber Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brent Crude and Lumber Futures.
Diversification Opportunities for Brent Crude and Lumber Futures
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Brent and Lumber is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil and Lumber Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumber Futures and Brent Crude 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 Brent Crude Oil 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 Brent Crude i.e., Brent Crude and Lumber Futures go up and down completely randomly.
Pair Corralation between Brent Crude and Lumber Futures
Assuming the 90 days horizon Brent Crude Oil is expected to under-perform the Lumber Futures. But the commodity apears to be less risky and, when comparing its historical volatility, Brent Crude Oil is 1.22 times less risky than Lumber Futures. The commodity trades about -0.03 of its potential returns per unit of risk. The Lumber Futures is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 56,450 in Lumber Futures on August 25, 2024 and sell it today you would earn a total of 2,650 from holding Lumber Futures or generate 4.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.45% |
| Values | Daily Returns |
Brent Crude Oil vs. Lumber Futures
Performance |
| Timeline |
| Brent Crude Oil |
| Lumber Futures |
Brent Crude and Lumber Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brent Crude and Lumber Futures
The main advantage of trading using opposite Brent Crude and Lumber Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brent Crude 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.| Brent Crude vs. Micro Silver Futures | Brent Crude vs. 30 Day Fed | Brent Crude vs. Mini Dow Jones | Brent Crude vs. Gasoline RBOB |
| Lumber Futures vs. Mini Dow Jones | Lumber Futures vs. Gasoline RBOB | Lumber Futures vs. Rough Rice Futures | Lumber Futures vs. Platinum |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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