Correlation Between E Mini and Live Cattle
Can any of the company-specific risk be diversified away by investing in both E Mini and Live Cattle 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 E Mini and Live Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between E Mini SP 500 and Live Cattle Futures, you can compare the effects of market volatilities on E Mini and Live Cattle 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 E Mini with a short position of Live Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of E Mini and Live Cattle.
Diversification Opportunities for E Mini and Live Cattle
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ESUSD and Live is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding E Mini SP 500 and Live Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Cattle Futures and E Mini 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 E Mini SP 500 are associated (or correlated) with Live Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Cattle Futures has no effect on the direction of E Mini i.e., E Mini and Live Cattle go up and down completely randomly.
Pair Corralation between E Mini and Live Cattle
Assuming the 90 days horizon E Mini SP 500 is expected to generate 1.27 times more return on investment than Live Cattle. However, E Mini is 1.27 times more volatile than Live Cattle Futures. It trades about 0.33 of its potential returns per unit of risk. Live Cattle Futures is currently generating about 0.1 per unit of risk. If you would invest 573,850 in E Mini SP 500 on September 1, 2024 and sell it today you would earn a total of 31,300 from holding E Mini SP 500 or generate 5.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
E Mini SP 500 vs. Live Cattle Futures
Performance |
| Timeline |
| E Mini SP |
| Live Cattle Futures |
E Mini and Live Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with E Mini and Live Cattle
The main advantage of trading using opposite E Mini and Live Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E Mini position performs unexpectedly, Live Cattle 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 Live Cattle will offset losses from the drop in Live Cattle's long position.| E Mini vs. 2 Year T Note Futures | E Mini vs. Heating Oil | E Mini vs. Crude Oil | E Mini vs. Aluminum Futures |
| Live Cattle vs. Cocoa | Live Cattle vs. E Mini SP 500 | Live Cattle vs. Cotton | Live Cattle vs. Class III Milk |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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