Correlation Between Copper and Oat Futures
Can any of the company-specific risk be diversified away by investing in both Copper and Oat 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 Copper and Oat Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Copper and Oat Futures, you can compare the effects of market volatilities on Copper and Oat 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 Copper with a short position of Oat Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Copper and Oat Futures.
Diversification Opportunities for Copper and Oat Futures
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Copper and Oat is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Copper and Oat Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oat 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 Oat Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oat Futures has no effect on the direction of Copper i.e., Copper and Oat Futures go up and down completely randomly.
Pair Corralation between Copper and Oat Futures
Assuming the 90 days horizon Copper is expected to under-perform the Oat Futures. But the commodity apears to be less risky and, when comparing its historical volatility, Copper is 1.39 times less risky than Oat Futures. The commodity trades about -0.13 of its potential returns per unit of risk. The Oat Futures is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 39,250 in Oat Futures on August 29, 2024 and sell it today you would lose (2,200) from holding Oat Futures or give up 5.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Copper vs. Oat Futures
Performance |
| Timeline |
| Copper |
| Oat Futures |
Copper and Oat Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Copper and Oat Futures
The main advantage of trading using opposite Copper and Oat Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Copper position performs unexpectedly, Oat 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 Oat Futures will offset losses from the drop in Oat Futures' long position.The idea behind Copper and Oat 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.| Oat Futures vs. Class III Milk | Oat Futures vs. 30 Year Treasury | Oat Futures vs. Sugar | Oat 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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