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
Average diversification
The 3 months correlation between Class and DXUSD is 0.18. 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 2.07 times more volatile than US Dollar. It trades about -0.2 of its total potential returns per unit of risk. US Dollar is currently generating about -0.15 per unit of volatility. If you would invest 10,921 in US Dollar on November 2, 2024 and sell it today you would lose (149.00) from holding US Dollar or give up 1.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| 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. Crude Oil | Class III vs. Micro E mini Russell | Class III vs. Lumber Futures | Class III vs. Palladium |
| US Dollar vs. Micro E mini Russell | US Dollar vs. Lean Hogs Futures | US Dollar vs. Class III Milk | US Dollar vs. Micro Gold 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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