Correlation Between Lumber Futures and Wheat Futures
Can any of the company-specific risk be diversified away by investing in both Lumber Futures and Wheat Futures 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 Wheat Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumber Futures and Wheat Futures, you can compare the effects of market volatilities on Lumber Futures and Wheat Futures 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 Wheat Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumber Futures and Wheat Futures.
Diversification Opportunities for Lumber Futures and Wheat Futures
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lumber and Wheat is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lumber Futures and Wheat Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wheat Futures 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 Wheat Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wheat Futures has no effect on the direction of Lumber Futures i.e., Lumber Futures and Wheat Futures go up and down completely randomly.
Pair Corralation between Lumber Futures and Wheat Futures
Assuming the 90 days horizon Lumber Futures is expected to generate 1.34 times more return on investment than Wheat Futures. However, Lumber Futures is 1.34 times more volatile than Wheat Futures. It trades about 0.25 of its potential returns per unit of risk. Wheat Futures is currently generating about -0.1 per unit of risk. If you would invest 52,950 in Lumber Futures on August 25, 2024 and sell it today you would earn a total of 6,150 from holding Lumber Futures or generate 11.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lumber Futures vs. Wheat Futures
Performance |
| Timeline |
| Lumber Futures |
| Wheat Futures |
Lumber Futures and Wheat Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumber Futures and Wheat Futures
The main advantage of trading using opposite Lumber Futures and Wheat Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumber Futures position performs unexpectedly, Wheat Futures 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 Wheat Futures will offset losses from the drop in Wheat Futures' long position.| Lumber Futures vs. Mini Dow Jones | Lumber Futures vs. Gasoline RBOB | Lumber Futures vs. Rough Rice Futures | Lumber Futures vs. Platinum |
| 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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