Correlation Between Copper and Lean Hogs
Can any of the company-specific risk be diversified away by investing in both Copper and Lean Hogs 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 Copper and Lean Hogs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Copper and Lean Hogs Futures, you can compare the effects of market volatilities on Copper and Lean Hogs 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 Copper with a short position of Lean Hogs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Copper and Lean Hogs.
Diversification Opportunities for Copper and Lean Hogs
Weak diversification
The 3 months correlation between Copper and Lean is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Copper and Lean Hogs Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lean Hogs Futures and Copper 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 Copper are associated (or correlated) with Lean Hogs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lean Hogs Futures has no effect on the direction of Copper i.e., Copper and Lean Hogs go up and down completely randomly.
Pair Corralation between Copper and Lean Hogs
Assuming the 90 days horizon Copper is expected to under-perform the Lean Hogs. But the commodity apears to be less risky and, when comparing its historical volatility, Copper is 1.16 times less risky than Lean Hogs. The commodity trades about -0.18 of its potential returns per unit of risk. The Lean Hogs Futures is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 8,203 in Lean Hogs Futures on August 27, 2024 and sell it today you would lose (5.00) from holding Lean Hogs Futures or give up 0.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Copper vs. Lean Hogs Futures
Performance |
| Timeline |
| Copper |
| Lean Hogs Futures |
Copper and Lean Hogs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Copper and Lean Hogs
The main advantage of trading using opposite Copper and Lean Hogs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Copper position performs unexpectedly, Lean Hogs 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 Lean Hogs will offset losses from the drop in Lean Hogs' long position.| Copper vs. 30 Year Treasury | Copper vs. 2 Year T Note Futures | Copper vs. Heating Oil | Copper vs. Crude Oil |
| Lean Hogs vs. Orange Juice | Lean Hogs vs. Brent Crude Oil | Lean Hogs vs. Natural Gas | Lean Hogs vs. Five Year Treasury Note |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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