Correlation Between Natural Gas and E Mini
Can any of the company-specific risk be diversified away by investing in both Natural Gas and E Mini 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 Natural Gas and E Mini into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Natural Gas and E Mini SP 500, you can compare the effects of market volatilities on Natural Gas and E Mini 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 Natural Gas with a short position of E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Gas and E Mini.
Diversification Opportunities for Natural Gas and E Mini
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Natural and ESUSD is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP and Natural Gas 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 Natural Gas are associated (or correlated) with E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Natural Gas i.e., Natural Gas and E Mini go up and down completely randomly.
Pair Corralation between Natural Gas and E Mini
Assuming the 90 days horizon Natural Gas is expected to under-perform the E Mini. In addition to that, Natural Gas is 5.67 times more volatile than E Mini SP 500. It trades about 0.0 of its total potential returns per unit of risk. E Mini SP 500 is currently generating about 0.1 per unit of volatility. If you would invest 400,325 in E Mini SP 500 on August 26, 2024 and sell it today you would earn a total of 198,375 from holding E Mini SP 500 or generate 49.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.61% |
| Values | Daily Returns |
Natural Gas vs. E Mini SP 500
Performance |
| Timeline |
| Natural Gas |
| E Mini SP |
Natural Gas and E Mini Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Natural Gas and E Mini
The main advantage of trading using opposite Natural Gas and E Mini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Gas position performs unexpectedly, E Mini 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 E Mini will offset losses from the drop in E Mini's long position.| Natural Gas vs. Soybean Meal Futures | Natural Gas vs. Coffee | Natural Gas vs. Sugar | Natural Gas vs. 10 Year T Note Futures |
| E Mini vs. Natural Gas | E Mini vs. Five Year Treasury Note | E Mini vs. Micro Gold Futures | E Mini 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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