Correlation Between Live Cattle and Micro E
Can any of the company-specific risk be diversified away by investing in both Live Cattle and Micro E 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 Micro E 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 Micro E mini Russell, you can compare the effects of market volatilities on Live Cattle and Micro E 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 Micro E. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Cattle and Micro E.
Diversification Opportunities for Live Cattle and Micro E
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Live and Micro is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Live Cattle Futures and Micro E mini Russell in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro E mini 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 Micro E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro E mini has no effect on the direction of Live Cattle i.e., Live Cattle and Micro E go up and down completely randomly.
Pair Corralation between Live Cattle and Micro E
Assuming the 90 days horizon Live Cattle is expected to generate 16.02 times less return on investment than Micro E. But when comparing it to its historical volatility, Live Cattle Futures is 1.4 times less risky than Micro E. It trades about 0.01 of its potential returns per unit of risk. Micro E mini Russell is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 205,530 in Micro E mini Russell on September 1, 2024 and sell it today you would earn a total of 38,930 from holding Micro E mini Russell or generate 18.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.42% |
| Values | Daily Returns |
Live Cattle Futures vs. Micro E mini Russell
Performance |
| Timeline |
| Live Cattle Futures |
| Micro E mini |
Live Cattle and Micro E Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Live Cattle and Micro E
The main advantage of trading using opposite Live Cattle and Micro E positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Live Cattle position performs unexpectedly, Micro E 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 Micro E will offset losses from the drop in Micro E's long position.| Live Cattle vs. Cocoa | Live Cattle vs. E Mini SP 500 | Live Cattle vs. Cotton | Live Cattle vs. Class III Milk |
| Micro E vs. Natural Gas | Micro E vs. Five Year Treasury Note | Micro E vs. Micro Gold Futures | Micro E vs. Class III Milk |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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