Correlation Between Lumber Futures and E Mini
Can any of the company-specific risk be diversified away by investing in both Lumber Futures and E Mini 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 Lumber Futures and E Mini into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumber Futures and E Mini SP 500, you can compare the effects of market volatilities on Lumber Futures and E Mini 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 Lumber Futures with a short position of E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumber Futures and E Mini.
Diversification Opportunities for Lumber Futures and E Mini
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lumber and ESUSD is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Lumber Futures and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP and Lumber 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 Lumber Futures are associated (or correlated) with E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Lumber Futures i.e., Lumber Futures and E Mini go up and down completely randomly.
Pair Corralation between Lumber Futures and E Mini
Assuming the 90 days horizon Lumber Futures is expected to generate 2.8 times less return on investment than E Mini. In addition to that, Lumber Futures is 2.53 times more volatile than E Mini SP 500. It trades about 0.02 of its total potential returns per unit of risk. E Mini SP 500 is currently generating about 0.12 per unit of volatility. If you would invest 508,575 in E Mini SP 500 on September 1, 2024 and sell it today you would earn a total of 96,575 from holding E Mini SP 500 or generate 18.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.42% |
| Values | Daily Returns |
Lumber Futures vs. E Mini SP 500
Performance |
| Timeline |
| Lumber Futures |
| E Mini SP |
Lumber Futures and E Mini Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumber Futures and E Mini
The main advantage of trading using opposite Lumber Futures and E Mini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumber Futures position performs unexpectedly, E Mini 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 E Mini will offset losses from the drop in E Mini's long position.| Lumber Futures vs. Aluminum Futures | Lumber Futures vs. Live Cattle Futures | Lumber Futures vs. Micro E mini Russell | Lumber Futures vs. Corn 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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