Correlation Between Wheat Futures and Lean Hogs
Can any of the company-specific risk be diversified away by investing in both Wheat Futures 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 Wheat Futures and Lean Hogs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wheat Futures and Lean Hogs Futures, you can compare the effects of market volatilities on Wheat Futures 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 Wheat Futures with a short position of Lean Hogs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wheat Futures and Lean Hogs.
Diversification Opportunities for Wheat Futures and Lean Hogs
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Wheat and Lean is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures 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 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 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 Wheat Futures i.e., Wheat Futures and Lean Hogs go up and down completely randomly.
Pair Corralation between Wheat Futures and Lean Hogs
Assuming the 90 days horizon Wheat Futures is expected to under-perform the Lean Hogs. In addition to that, Wheat Futures is 1.16 times more volatile than Lean Hogs Futures. It trades about -0.1 of its total potential returns per unit of risk. Lean Hogs Futures is currently generating about 0.13 per unit of volatility. If you would invest 7,865 in Lean Hogs Futures on August 25, 2024 and sell it today you would earn a total of 303.00 from holding Lean Hogs Futures or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wheat Futures vs. Lean Hogs Futures
Performance |
| Timeline |
| Wheat Futures |
| Lean Hogs Futures |
Wheat Futures and Lean Hogs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wheat Futures and Lean Hogs
The main advantage of trading using opposite Wheat Futures and Lean Hogs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wheat Futures 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.| Wheat Futures vs. Heating Oil | Wheat Futures vs. Crude Oil | Wheat Futures vs. Aluminum Futures | Wheat Futures vs. Corn Futures |
| Lean Hogs vs. Oat Futures | Lean Hogs vs. Wheat Futures | Lean Hogs vs. Feeder Cattle Futures | Lean Hogs vs. Micro Silver 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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