Correlation Between Crude Oil and Lean Hogs
Can any of the company-specific risk be diversified away by investing in both Crude Oil and Lean Hogs 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 Crude Oil and Lean Hogs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Crude Oil and Lean Hogs Futures, you can compare the effects of market volatilities on Crude Oil and Lean Hogs 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 Crude Oil with a short position of Lean Hogs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crude Oil and Lean Hogs.
Diversification Opportunities for Crude Oil and Lean Hogs
Significant diversification
The 3 months correlation between Crude and Lean is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Crude Oil and Lean Hogs Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lean Hogs Futures and Crude Oil 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 Crude Oil are associated (or correlated) with Lean Hogs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lean Hogs Futures has no effect on the direction of Crude Oil i.e., Crude Oil and Lean Hogs go up and down completely randomly.
Pair Corralation between Crude Oil and Lean Hogs
Assuming the 90 days horizon Crude Oil is expected to generate 1.32 times more return on investment than Lean Hogs. However, Crude Oil is 1.32 times more volatile than Lean Hogs Futures. It trades about 0.4 of its potential returns per unit of risk. Lean Hogs Futures is currently generating about -0.17 per unit of risk. If you would invest 6,924 in Crude Oil on October 22, 2024 and sell it today you would earn a total of 880.00 from holding Crude Oil or generate 12.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Crude Oil vs. Lean Hogs Futures
Performance |
| Timeline |
| Crude Oil |
| Lean Hogs Futures |
Crude Oil and Lean Hogs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Crude Oil and Lean Hogs
The main advantage of trading using opposite Crude Oil and Lean Hogs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crude Oil position performs unexpectedly, Lean Hogs 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 Lean Hogs will offset losses from the drop in Lean Hogs' long position.| Crude Oil vs. Wheat Futures | Crude Oil vs. Lean Hogs Futures | Crude Oil vs. Live Cattle Futures | Crude Oil vs. Lumber Futures |
| Lean Hogs vs. Crude Oil | Lean Hogs vs. Palladium | Lean Hogs vs. Gasoline RBOB | Lean Hogs vs. Rough Rice Futures |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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