Correlation Between Class III and US Dollar
Can any of the company-specific risk be diversified away by investing in both Class III and US Dollar 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 Class III and US Dollar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Class III Milk and US Dollar, you can compare the effects of market volatilities on Class III and US Dollar 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 Class III with a short position of US Dollar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and US Dollar.
Diversification Opportunities for Class III and US Dollar
Excellent diversification
The 3 months correlation between Class and DXUSD is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and US Dollar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Dollar and Class III 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 Class III Milk are associated (or correlated) with US Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Dollar has no effect on the direction of Class III i.e., Class III and US Dollar go up and down completely randomly.
Pair Corralation between Class III and US Dollar
Assuming the 90 days horizon Class III Milk is expected to under-perform the US Dollar. In addition to that, Class III is 5.1 times more volatile than US Dollar. It trades about -0.22 of its total potential returns per unit of risk. US Dollar is currently generating about 0.26 per unit of volatility. If you would invest 10,392 in US Dollar on August 25, 2024 and sell it today you would earn a total of 311.00 from holding US Dollar or generate 2.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Class III Milk vs. US Dollar
Performance |
| Timeline |
| Class III Milk |
| US Dollar |
Class III and US Dollar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Class III and US Dollar
The main advantage of trading using opposite Class III and US Dollar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Class III position performs unexpectedly, US Dollar 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 US Dollar will offset losses from the drop in US Dollar's long position.| Class III vs. 30 Day Fed | Class III vs. US Dollar | Class III vs. 2 Year T Note Futures | Class III vs. Brent Crude Oil |
| US Dollar vs. 10 Year T Note Futures | US Dollar vs. Nasdaq 100 | US Dollar vs. Oat Futures | US Dollar vs. Wheat 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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