Correlation Between Class III and Soybean Meal
Can any of the company-specific risk be diversified away by investing in both Class III and Soybean Meal 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 Soybean Meal 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 Soybean Meal Futures, you can compare the effects of market volatilities on Class III and Soybean Meal 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 Soybean Meal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and Soybean Meal.
Diversification Opportunities for Class III and Soybean Meal
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Class and Soybean is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and Soybean Meal Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soybean Meal Futures 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 Soybean Meal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soybean Meal Futures has no effect on the direction of Class III i.e., Class III and Soybean Meal go up and down completely randomly.
Pair Corralation between Class III and Soybean Meal
Assuming the 90 days horizon Class III Milk is expected to under-perform the Soybean Meal. But the commodity apears to be less risky and, when comparing its historical volatility, Class III Milk is 2.23 times less risky than Soybean Meal. The commodity trades about -0.2 of its potential returns per unit of risk. The Soybean Meal Futures is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 31,090 in Soybean Meal Futures on November 2, 2024 and sell it today you would lose (620.00) from holding Soybean Meal Futures or give up 1.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Class III Milk vs. Soybean Meal Futures
Performance |
| Timeline |
| Class III Milk |
| Soybean Meal Futures |
Class III and Soybean Meal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Class III and Soybean Meal
The main advantage of trading using opposite Class III and Soybean Meal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Class III position performs unexpectedly, Soybean Meal 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 Soybean Meal will offset losses from the drop in Soybean Meal's long position.| Class III vs. Crude Oil | Class III vs. Micro E mini Russell | Class III vs. Lumber Futures | Class III vs. Palladium |
| Soybean Meal vs. Corn Futures | Soybean Meal vs. Cocoa | Soybean Meal vs. Micro Gold Futures | Soybean Meal 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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