Correlation Between Heating Oil and Feeder Cattle
Can any of the company-specific risk be diversified away by investing in both Heating Oil and Feeder 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 Heating Oil and Feeder Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Heating Oil and Feeder Cattle Futures, you can compare the effects of market volatilities on Heating Oil and Feeder 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 Heating Oil with a short position of Feeder Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heating Oil and Feeder Cattle.
Diversification Opportunities for Heating Oil and Feeder Cattle
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Heating and Feeder is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Heating Oil and Feeder Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feeder Cattle Futures and Heating Oil 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 Heating Oil are associated (or correlated) with Feeder Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feeder Cattle Futures has no effect on the direction of Heating Oil i.e., Heating Oil and Feeder Cattle go up and down completely randomly.
Pair Corralation between Heating Oil and Feeder Cattle
Assuming the 90 days horizon Heating Oil is expected to under-perform the Feeder Cattle. In addition to that, Heating Oil is 1.93 times more volatile than Feeder Cattle Futures. It trades about -0.02 of its total potential returns per unit of risk. Feeder Cattle Futures is currently generating about 0.07 per unit of volatility. If you would invest 22,230 in Feeder Cattle Futures on August 25, 2024 and sell it today you would earn a total of 3,200 from holding Feeder Cattle Futures or generate 14.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.45% |
| Values | Daily Returns |
Heating Oil vs. Feeder Cattle Futures
Performance |
| Timeline |
| Heating Oil |
| Feeder Cattle Futures |
Heating Oil and Feeder Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Heating Oil and Feeder Cattle
The main advantage of trading using opposite Heating Oil and Feeder Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heating Oil position performs unexpectedly, Feeder 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 Feeder Cattle will offset losses from the drop in Feeder Cattle's long position.| Heating Oil vs. 10 Year T Note Futures | Heating Oil vs. Nasdaq 100 | Heating Oil vs. Oat Futures | Heating Oil vs. Wheat Futures |
| Feeder Cattle vs. Heating Oil | Feeder Cattle vs. Crude Oil | Feeder Cattle vs. Aluminum Futures | Feeder Cattle vs. Corn 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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