Correlation Between Class III and 10 Year
Can any of the company-specific risk be diversified away by investing in both Class III and 10 Year 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 10 Year 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 10 Year T Note Futures, you can compare the effects of market volatilities on Class III and 10 Year 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 10 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and 10 Year.
Diversification Opportunities for Class III and 10 Year
Poor diversification
The 3 months correlation between Class and ZNUSD is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and 10 Year T Note Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 10 Year T 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 10 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 10 Year T has no effect on the direction of Class III i.e., Class III and 10 Year go up and down completely randomly.
Pair Corralation between Class III and 10 Year
Assuming the 90 days horizon Class III Milk is expected to generate 4.65 times more return on investment than 10 Year. However, Class III is 4.65 times more volatile than 10 Year T Note Futures. It trades about 0.01 of its potential returns per unit of risk. 10 Year T Note Futures is currently generating about -0.01 per unit of risk. If you would invest 2,041 in Class III Milk on August 26, 2024 and sell it today you would lose (54.00) from holding Class III Milk or give up 2.65% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.84% |
| Values | Daily Returns |
Class III Milk vs. 10 Year T Note Futures
Performance |
| Timeline |
| Class III Milk |
| 10 Year T |
Class III and 10 Year Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Class III and 10 Year
The main advantage of trading using opposite Class III and 10 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Class III position performs unexpectedly, 10 Year 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 10 Year will offset losses from the drop in 10 Year'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 |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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