Correlation Between US Dollar and Lumber Futures
Can any of the company-specific risk be diversified away by investing in both US Dollar and Lumber Futures 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 US Dollar and Lumber Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Dollar and Lumber Futures, you can compare the effects of market volatilities on US Dollar and Lumber Futures 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 US Dollar with a short position of Lumber Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Dollar and Lumber Futures.
Diversification Opportunities for US Dollar and Lumber Futures
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between DXUSD and Lumber is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding US Dollar and Lumber Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumber Futures and US Dollar 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 US Dollar are associated (or correlated) with Lumber Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumber Futures has no effect on the direction of US Dollar i.e., US Dollar and Lumber Futures go up and down completely randomly.
Pair Corralation between US Dollar and Lumber Futures
Assuming the 90 days horizon US Dollar is expected to generate 10.66 times less return on investment than Lumber Futures. But when comparing it to its historical volatility, US Dollar is 4.69 times less risky than Lumber Futures. It trades about 0.02 of its potential returns per unit of risk. Lumber Futures is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 50,350 in Lumber Futures on August 29, 2024 and sell it today you would earn a total of 8,500 from holding Lumber Futures or generate 16.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.82% |
| Values | Daily Returns |
US Dollar vs. Lumber Futures
Performance |
| Timeline |
| US Dollar |
| Lumber Futures |
US Dollar and Lumber Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Dollar and Lumber Futures
The main advantage of trading using opposite US Dollar and Lumber Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Dollar position performs unexpectedly, Lumber Futures 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 Lumber Futures will offset losses from the drop in Lumber Futures' long position.| US Dollar vs. Cotton | US Dollar vs. Live Cattle Futures | US Dollar vs. Crude Oil | US Dollar vs. Lean Hogs Futures |
| Lumber Futures vs. Palladium | Lumber Futures vs. Heating Oil | Lumber Futures vs. Micro Gold Futures | Lumber Futures vs. Lean Hogs 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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