Correlation Between Lumber Futures and Heating Oil
Can any of the company-specific risk be diversified away by investing in both Lumber Futures and Heating Oil 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 Heating Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumber Futures and Heating Oil, you can compare the effects of market volatilities on Lumber Futures and Heating Oil 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 Heating Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumber Futures and Heating Oil.
Diversification Opportunities for Lumber Futures and Heating Oil
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Lumber and Heating is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Lumber Futures and Heating Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heating Oil 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 Heating Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heating Oil has no effect on the direction of Lumber Futures i.e., Lumber Futures and Heating Oil go up and down completely randomly.
Pair Corralation between Lumber Futures and Heating Oil
Assuming the 90 days horizon Lumber Futures is expected to generate 1.02 times more return on investment than Heating Oil. However, Lumber Futures is 1.02 times more volatile than Heating Oil. It trades about 0.05 of its potential returns per unit of risk. Heating Oil is currently generating about 0.0 per unit of risk. If you would invest 44,750 in Lumber Futures on August 29, 2024 and sell it today you would earn a total of 14,450 from holding Lumber Futures or generate 32.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.06% |
| Values | Daily Returns |
Lumber Futures vs. Heating Oil
Performance |
| Timeline |
| Lumber Futures |
| Heating Oil |
Lumber Futures and Heating Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumber Futures and Heating Oil
The main advantage of trading using opposite Lumber Futures and Heating Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumber Futures position performs unexpectedly, Heating Oil 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 Heating Oil will offset losses from the drop in Heating Oil's long position.| Lumber Futures vs. Sugar | Lumber Futures vs. 10 Year T Note Futures | Lumber Futures vs. Nasdaq 100 | Lumber Futures vs. Oat Futures |
| Heating Oil vs. Cocoa | Heating Oil vs. Orange Juice | Heating Oil vs. 30 Day Fed | Heating Oil vs. Five Year Treasury Note |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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