Correlation Between Wheat Futures and Crude Oil
Can any of the company-specific risk be diversified away by investing in both Wheat Futures and Crude Oil 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 Wheat Futures and Crude Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wheat Futures and Crude Oil, you can compare the effects of market volatilities on Wheat Futures and Crude Oil 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 Wheat Futures with a short position of Crude Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wheat Futures and Crude Oil.
Diversification Opportunities for Wheat Futures and Crude Oil
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Wheat and Crude is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures and Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crude Oil and Wheat Futures 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 Wheat Futures are associated (or correlated) with Crude Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crude Oil has no effect on the direction of Wheat Futures i.e., Wheat Futures and Crude Oil go up and down completely randomly.
Pair Corralation between Wheat Futures and Crude Oil
Assuming the 90 days horizon Wheat Futures is expected to under-perform the Crude Oil. But the commodity apears to be less risky and, when comparing its historical volatility, Wheat Futures is 1.54 times less risky than Crude Oil. The commodity trades about -0.01 of its potential returns per unit of risk. The Crude Oil is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 7,156 in Crude Oil on August 25, 2024 and sell it today you would lose (31.00) from holding Crude Oil or give up 0.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wheat Futures vs. Crude Oil
Performance |
| Timeline |
| Wheat Futures |
| Crude Oil |
Wheat Futures and Crude Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wheat Futures and Crude Oil
The main advantage of trading using opposite Wheat Futures and Crude Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wheat Futures position performs unexpectedly, Crude Oil 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 Crude Oil will offset losses from the drop in Crude Oil's long position.| Wheat Futures vs. Heating Oil | Wheat Futures vs. Crude Oil | Wheat Futures vs. Aluminum Futures | Wheat Futures vs. Corn Futures |
| Crude Oil vs. Soybean Meal Futures | Crude Oil vs. Coffee | Crude Oil vs. Sugar | Crude Oil vs. 10 Year T Note 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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