Correlation Between Wheat Futures and Sugar
Can any of the company-specific risk be diversified away by investing in both Wheat Futures and Sugar 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 Sugar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wheat Futures and Sugar, you can compare the effects of market volatilities on Wheat Futures and Sugar 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 Sugar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wheat Futures and Sugar.
Diversification Opportunities for Wheat Futures and Sugar
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Wheat and Sugar is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar 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 Sugar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sugar has no effect on the direction of Wheat Futures i.e., Wheat Futures and Sugar go up and down completely randomly.
Pair Corralation between Wheat Futures and Sugar
Assuming the 90 days horizon Wheat Futures is expected to under-perform the Sugar. But the commodity apears to be less risky and, when comparing its historical volatility, Wheat Futures is 1.0 times less risky than Sugar. The commodity trades about -0.03 of its potential returns per unit of risk. The Sugar is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,955 in Sugar on August 25, 2024 and sell it today you would earn a total of 183.00 from holding Sugar or generate 9.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.81% |
| Values | Daily Returns |
Wheat Futures vs. Sugar
Performance |
| Timeline |
| Wheat Futures |
| Sugar |
Wheat Futures and Sugar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wheat Futures and Sugar
The main advantage of trading using opposite Wheat Futures and Sugar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wheat Futures position performs unexpectedly, Sugar 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 Sugar will offset losses from the drop in Sugar's long position.| Wheat Futures vs. Heating Oil | Wheat Futures vs. Crude Oil | Wheat Futures vs. Aluminum Futures | Wheat Futures 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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