Correlation Between Live Cattle and Gasoline RBOB
Can any of the company-specific risk be diversified away by investing in both Live Cattle and Gasoline RBOB 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 Gasoline RBOB 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 Gasoline RBOB, you can compare the effects of market volatilities on Live Cattle and Gasoline RBOB 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 Gasoline RBOB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Cattle and Gasoline RBOB.
Diversification Opportunities for Live Cattle and Gasoline RBOB
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Live and Gasoline is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Live Cattle Futures and Gasoline RBOB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gasoline RBOB 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 Gasoline RBOB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gasoline RBOB has no effect on the direction of Live Cattle i.e., Live Cattle and Gasoline RBOB go up and down completely randomly.
Pair Corralation between Live Cattle and Gasoline RBOB
Assuming the 90 days horizon Live Cattle Futures is expected to generate 0.77 times more return on investment than Gasoline RBOB. However, Live Cattle Futures is 1.3 times less risky than Gasoline RBOB. It trades about 0.24 of its potential returns per unit of risk. Gasoline RBOB is currently generating about 0.02 per unit of risk. If you would invest 19,360 in Live Cattle Futures on November 3, 2024 and sell it today you would earn a total of 870.00 from holding Live Cattle Futures or generate 4.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Live Cattle Futures vs. Gasoline RBOB
Performance |
| Timeline |
| Live Cattle Futures |
| Gasoline RBOB |
Live Cattle and Gasoline RBOB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Live Cattle and Gasoline RBOB
The main advantage of trading using opposite Live Cattle and Gasoline RBOB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Live Cattle position performs unexpectedly, Gasoline RBOB 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 Gasoline RBOB will offset losses from the drop in Gasoline RBOB's long position.| Live Cattle vs. Rough Rice Futures | Live Cattle vs. Platinum | Live Cattle vs. Soybean Futures | Live Cattle vs. E Mini SP 500 |
| Gasoline RBOB vs. Corn Futures | Gasoline RBOB vs. Aluminum Futures | Gasoline RBOB vs. Micro E mini Russell | Gasoline RBOB vs. 30 Year Treasury |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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