Correlation Between Class III and Gasoline RBOB
Can any of the company-specific risk be diversified away by investing in both Class III and Gasoline RBOB 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 Gasoline RBOB 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 Gasoline RBOB, you can compare the effects of market volatilities on Class III and Gasoline RBOB 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 Gasoline RBOB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and Gasoline RBOB.
Diversification Opportunities for Class III and Gasoline RBOB
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Class and Gasoline is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and Gasoline RBOB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gasoline RBOB 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 Gasoline RBOB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gasoline RBOB has no effect on the direction of Class III i.e., Class III and Gasoline RBOB go up and down completely randomly.
Pair Corralation between Class III and Gasoline RBOB
Assuming the 90 days horizon Class III Milk is expected to under-perform the Gasoline RBOB. But the commodity apears to be less risky and, when comparing its historical volatility, Class III Milk is 2.06 times less risky than Gasoline RBOB. The commodity trades about -0.12 of its potential returns per unit of risk. The Gasoline RBOB is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 205.00 in Gasoline RBOB on November 3, 2024 and sell it today you would earn a total of 1.00 from holding Gasoline RBOB or generate 0.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Class III Milk vs. Gasoline RBOB
Performance |
| Timeline |
| Class III Milk |
| Gasoline RBOB |
Class III and Gasoline RBOB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Class III and Gasoline RBOB
The main advantage of trading using opposite Class III and Gasoline RBOB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Class III position performs unexpectedly, Gasoline RBOB 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 Gasoline RBOB will offset losses from the drop in Gasoline RBOB's long position.The idea behind Class III Milk and Gasoline RBOB 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.| Gasoline RBOB vs. Corn Futures | Gasoline RBOB vs. Aluminum Futures | Gasoline RBOB vs. Micro E mini Russell | Gasoline RBOB vs. 30 Year Treasury |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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