Correlation Between Wheat Futures and Feeder Cattle
Can any of the company-specific risk be diversified away by investing in both Wheat Futures 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 Wheat Futures and Feeder Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wheat Futures and Feeder Cattle Futures, you can compare the effects of market volatilities on Wheat Futures 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 Wheat Futures with a short position of Feeder Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wheat Futures and Feeder Cattle.
Diversification Opportunities for Wheat Futures and Feeder Cattle
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Wheat and Feeder is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures 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 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 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 Wheat Futures i.e., Wheat Futures and Feeder Cattle go up and down completely randomly.
Pair Corralation between Wheat Futures and Feeder Cattle
Assuming the 90 days horizon Wheat Futures is expected to under-perform the Feeder Cattle. In addition to that, Wheat Futures is 1.99 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 0.03 per unit of volatility. If you would invest 24,488 in Feeder Cattle Futures on August 29, 2024 and sell it today you would earn a total of 1,322 from holding Feeder Cattle Futures or generate 5.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.05% |
| Values | Daily Returns |
Wheat Futures vs. Feeder Cattle Futures
Performance |
| Timeline |
| Wheat Futures |
| Feeder Cattle Futures |
Wheat Futures and Feeder Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wheat Futures and Feeder Cattle
The main advantage of trading using opposite Wheat Futures and Feeder Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wheat Futures 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.| Wheat Futures vs. Cotton | Wheat Futures vs. US Dollar | Wheat Futures vs. Palladium | Wheat Futures vs. Lumber Futures |
| Feeder Cattle vs. Sugar | Feeder Cattle vs. Micro Gold Futures | Feeder Cattle vs. Heating Oil | Feeder Cattle vs. Platinum |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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