Correlation Between Wheat Futures and Soybean Meal
Can any of the company-specific risk be diversified away by investing in both Wheat Futures and Soybean Meal 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 Soybean Meal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wheat Futures and Soybean Meal Futures, you can compare the effects of market volatilities on Wheat Futures and Soybean Meal 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 Soybean Meal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wheat Futures and Soybean Meal.
Diversification Opportunities for Wheat Futures and Soybean Meal
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wheat and Soybean is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Wheat Futures and Soybean Meal Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soybean Meal 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 Soybean Meal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soybean Meal Futures has no effect on the direction of Wheat Futures i.e., Wheat Futures and Soybean Meal go up and down completely randomly.
Pair Corralation between Wheat Futures and Soybean Meal
Assuming the 90 days horizon Wheat Futures is expected to generate about the same return on investment as Soybean Meal Futures. However, Wheat Futures is 1.01 times more volatile than Soybean Meal Futures. It trades about -0.03 of its potential returns per unit of risk. Soybean Meal Futures is currently producing about -0.03 per unit of risk. If you would invest 43,200 in Soybean Meal Futures on August 25, 2024 and sell it today you would lose (14,050) from holding Soybean Meal Futures or give up 32.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Wheat Futures vs. Soybean Meal Futures
Performance |
| Timeline |
| Wheat Futures |
| Soybean Meal Futures |
Wheat Futures and Soybean Meal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wheat Futures and Soybean Meal
The main advantage of trading using opposite Wheat Futures and Soybean Meal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wheat Futures position performs unexpectedly, Soybean Meal 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 Soybean Meal will offset losses from the drop in Soybean Meal's long position.| Wheat Futures vs. Heating Oil | Wheat Futures vs. Crude Oil | Wheat Futures vs. Aluminum Futures | Wheat Futures vs. Corn Futures |
| Soybean Meal vs. Micro Gold Futures | Soybean Meal vs. Crude Oil | Soybean Meal vs. Live Cattle Futures | Soybean Meal vs. 2 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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