Correlation Between Live Cattle and Class III
Can any of the company-specific risk be diversified away by investing in both Live Cattle and Class III 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 Live Cattle and Class III into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Live Cattle Futures and Class III Milk, you can compare the effects of market volatilities on Live Cattle and Class III 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 Live Cattle with a short position of Class III. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Cattle and Class III.
Diversification Opportunities for Live Cattle and Class III
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Live and Class is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Live Cattle Futures and Class III Milk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Class III Milk and Live Cattle 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 Live Cattle Futures are associated (or correlated) with Class III. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Class III Milk has no effect on the direction of Live Cattle i.e., Live Cattle and Class III go up and down completely randomly.
Pair Corralation between Live Cattle and Class III
Assuming the 90 days horizon Live Cattle is expected to generate 13.05 times less return on investment than Class III. But when comparing it to its historical volatility, Live Cattle Futures is 2.18 times less risky than Class III. It trades about 0.01 of its potential returns per unit of risk. Class III Milk is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,652 in Class III Milk on September 1, 2024 and sell it today you would earn a total of 200.00 from holding Class III Milk or generate 12.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.47% |
| Values | Daily Returns |
Live Cattle Futures vs. Class III Milk
Performance |
| Timeline |
| Live Cattle Futures |
| Class III Milk |
Live Cattle and Class III Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Live Cattle and Class III
The main advantage of trading using opposite Live Cattle and Class III positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Live Cattle position performs unexpectedly, Class III 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 Class III will offset losses from the drop in Class III's long position.| Live Cattle vs. Cocoa | Live Cattle vs. E Mini SP 500 | Live Cattle vs. Cotton | Live Cattle vs. Class III Milk |
| Class III vs. 10 Year T Note Futures | Class III vs. Nasdaq 100 | Class III vs. Oat Futures | Class III vs. Wheat 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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