Correlation Between Lumber Futures and Sugar
Can any of the company-specific risk be diversified away by investing in both Lumber 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 Lumber Futures and Sugar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumber Futures and Sugar, you can compare the effects of market volatilities on Lumber 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 Lumber Futures with a short position of Sugar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumber Futures and Sugar.
Diversification Opportunities for Lumber Futures and Sugar
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Lumber and Sugar is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Lumber Futures and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar 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 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 Lumber Futures i.e., Lumber Futures and Sugar go up and down completely randomly.
Pair Corralation between Lumber Futures and Sugar
Assuming the 90 days horizon Lumber Futures is expected to generate 1.55 times more return on investment than Sugar. However, Lumber Futures is 1.55 times more volatile than Sugar. It trades about 0.02 of its potential returns per unit of risk. Sugar is currently generating about 0.02 per unit of risk. If you would invest 51,000 in Lumber Futures on September 3, 2024 and sell it today you would earn a total of 7,900 from holding Lumber Futures or generate 15.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 94.57% |
| Values | Daily Returns |
Lumber Futures vs. Sugar
Performance |
| Timeline |
| Lumber Futures |
| Sugar |
Lumber Futures and Sugar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumber Futures and Sugar
The main advantage of trading using opposite Lumber Futures and Sugar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumber 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.| Lumber Futures vs. Sugar | Lumber Futures vs. 10 Year T Note Futures | Lumber Futures vs. Nasdaq 100 | Lumber Futures vs. Oat Futures |
| Sugar vs. Brent Crude Oil | Sugar vs. Natural Gas | Sugar vs. Five Year Treasury Note | Sugar vs. Micro Gold 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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