Correlation Between Lean Hogs and Live Cattle
Can any of the company-specific risk be diversified away by investing in both Lean Hogs 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 Lean Hogs and Live Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lean Hogs Futures and Live Cattle Futures, you can compare the effects of market volatilities on Lean Hogs 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 Lean Hogs with a short position of Live Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lean Hogs and Live Cattle.
Diversification Opportunities for Lean Hogs and Live Cattle
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Lean and Live is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Lean Hogs Futures 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 Lean Hogs 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 Lean Hogs Futures 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 Lean Hogs i.e., Lean Hogs and Live Cattle go up and down completely randomly.
Pair Corralation between Lean Hogs and Live Cattle
Assuming the 90 days horizon Lean Hogs Futures is expected to generate 1.48 times more return on investment than Live Cattle. However, Lean Hogs is 1.48 times more volatile than Live Cattle Futures. It trades about 0.18 of its potential returns per unit of risk. Live Cattle Futures is currently generating about -0.22 per unit of risk. If you would invest 8,305 in Lean Hogs Futures on November 27, 2024 and sell it today you would earn a total of 435.00 from holding Lean Hogs Futures or generate 5.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lean Hogs Futures vs. Live Cattle Futures
Performance |
| Timeline |
| Lean Hogs Futures |
| Live Cattle Futures |
Lean Hogs and Live Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lean Hogs and Live Cattle
The main advantage of trading using opposite Lean Hogs and Live Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lean Hogs 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.| Lean Hogs vs. Lumber Futures | Lean Hogs vs. Live Cattle Futures | Lean Hogs vs. Cotton | Lean Hogs vs. Rough Rice Futures |
| Live Cattle vs. Micro E mini Russell | Live Cattle vs. Cocoa | Live Cattle vs. Corn Futures | Live Cattle vs. US Dollar |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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