Correlation Between Wheat Futures and Natural Gas
Can any of the company-specific risk be diversified away by investing in both Wheat Futures and Natural Gas 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 Natural Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wheat Futures and Natural Gas, you can compare the effects of market volatilities on Wheat Futures and Natural Gas 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 Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wheat Futures and Natural Gas.
Diversification Opportunities for Wheat Futures and Natural Gas
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Wheat and Natural is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures and Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas 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 Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas has no effect on the direction of Wheat Futures i.e., Wheat Futures and Natural Gas go up and down completely randomly.
Pair Corralation between Wheat Futures and Natural Gas
Assuming the 90 days horizon Wheat Futures is expected to under-perform the Natural Gas. But the commodity apears to be less risky and, when comparing its historical volatility, Wheat Futures is 3.59 times less risky than Natural Gas. The commodity trades about -0.07 of its potential returns per unit of risk. The Natural Gas is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 292.00 in Natural Gas on August 29, 2024 and sell it today you would earn a total of 56.00 from holding Natural Gas or generate 19.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wheat Futures vs. Natural Gas
Performance |
| Timeline |
| Wheat Futures |
| Natural Gas |
Wheat Futures and Natural Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wheat Futures and Natural Gas
The main advantage of trading using opposite Wheat Futures and Natural Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wheat Futures position performs unexpectedly, Natural Gas 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 Natural Gas will offset losses from the drop in Natural Gas' long position.| Wheat Futures vs. Cotton | Wheat Futures vs. US Dollar | Wheat Futures vs. Palladium | Wheat Futures vs. Lumber Futures |
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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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