Correlation Between E Mini and 10 Year
Can any of the company-specific risk be diversified away by investing in both E Mini 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 E Mini and 10 Year 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 10 Year T Note Futures, you can compare the effects of market volatilities on E Mini 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 E Mini with a short position of 10 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of E Mini and 10 Year.
Diversification Opportunities for E Mini and 10 Year
Excellent diversification
The 3 months correlation between ESUSD and ZNUSD is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding E Mini SP 500 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 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 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 E Mini i.e., E Mini and 10 Year go up and down completely randomly.
Pair Corralation between E Mini and 10 Year
Assuming the 90 days horizon E Mini SP 500 is expected to generate 1.37 times more return on investment than 10 Year. However, E Mini is 1.37 times more volatile than 10 Year T Note Futures. It trades about 0.29 of its potential returns per unit of risk. 10 Year T Note Futures is currently generating about 0.05 per unit of risk. If you would invest 592,000 in E Mini SP 500 on September 18, 2024 and sell it today you would earn a total of 13,600 from holding E Mini SP 500 or generate 2.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
E Mini SP 500 vs. 10 Year T Note Futures
Performance |
| Timeline |
| E Mini SP |
| 10 Year T |
E Mini and 10 Year Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with E Mini and 10 Year
The main advantage of trading using opposite E Mini and 10 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E Mini 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.The idea behind E Mini SP 500 and 10 Year T Note Futures 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.| 10 Year vs. E Mini SP 500 | 10 Year vs. 30 Year Treasury | 10 Year vs. 2 Year T Note Futures | 10 Year vs. Heating 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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