Correlation Between Live Cattle and Mini Dow
Can any of the company-specific risk be diversified away by investing in both Live Cattle and Mini Dow 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 Mini Dow 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 Mini Dow Jones, you can compare the effects of market volatilities on Live Cattle and Mini Dow 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 Mini Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Cattle and Mini Dow.
Diversification Opportunities for Live Cattle and Mini Dow
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Live and Mini is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Live Cattle Futures and Mini Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mini Dow Jones 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 Mini Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mini Dow Jones has no effect on the direction of Live Cattle i.e., Live Cattle and Mini Dow go up and down completely randomly.
Pair Corralation between Live Cattle and Mini Dow
Assuming the 90 days horizon Live Cattle Futures is expected to under-perform the Mini Dow. But the commodity apears to be less risky and, when comparing its historical volatility, Live Cattle Futures is 1.58 times less risky than Mini Dow. The commodity trades about -0.06 of its potential returns per unit of risk. The Mini Dow Jones is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 4,260,600 in Mini Dow Jones on August 29, 2024 and sell it today you would earn a total of 239,100 from holding Mini Dow Jones or generate 5.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Live Cattle Futures vs. Mini Dow Jones
Performance |
| Timeline |
| Live Cattle Futures |
| Mini Dow Jones |
Live Cattle and Mini Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Live Cattle and Mini Dow
The main advantage of trading using opposite Live Cattle and Mini Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Live Cattle position performs unexpectedly, Mini Dow 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 Mini Dow will offset losses from the drop in Mini Dow's long position.| Live Cattle vs. Cocoa | Live Cattle vs. Corn Futures | Live Cattle vs. Soybean Futures | Live Cattle vs. Nasdaq 100 |
| Mini Dow vs. Live Cattle Futures | Mini Dow vs. US Dollar | Mini Dow vs. Micro E mini Russell | Mini Dow vs. Lumber 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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