Correlation Between Natural Gas and Feeder Cattle
Can any of the company-specific risk be diversified away by investing in both Natural Gas and Feeder Cattle 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 Feeder Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Natural Gas and Feeder Cattle Futures, you can compare the effects of market volatilities on Natural Gas and Feeder Cattle 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 Feeder Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Gas and Feeder Cattle.
Diversification Opportunities for Natural Gas and Feeder Cattle
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Natural and Feeder is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas and Feeder Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feeder Cattle Futures 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 Feeder Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feeder Cattle Futures has no effect on the direction of Natural Gas i.e., Natural Gas and Feeder Cattle go up and down completely randomly.
Pair Corralation between Natural Gas and Feeder Cattle
Assuming the 90 days horizon Natural Gas is expected to generate 4.15 times more return on investment than Feeder Cattle. However, Natural Gas is 4.15 times more volatile than Feeder Cattle Futures. It trades about 0.4 of its potential returns per unit of risk. Feeder Cattle Futures is currently generating about 0.16 per unit of risk. If you would invest 325.00 in Natural Gas on December 6, 2024 and sell it today you would earn a total of 120.00 from holding Natural Gas or generate 36.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Natural Gas vs. Feeder Cattle Futures
Performance |
| Timeline |
| Natural Gas |
| Feeder Cattle Futures |
Natural Gas and Feeder Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Natural Gas and Feeder Cattle
The main advantage of trading using opposite Natural Gas and Feeder Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Gas position performs unexpectedly, Feeder Cattle 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 Feeder Cattle will offset losses from the drop in Feeder Cattle's long position.| Natural Gas vs. Palladium | Natural Gas vs. Cocoa | Natural Gas vs. Lumber Futures | Natural Gas vs. Micro Gold Futures |
| Feeder Cattle vs. US Dollar | Feeder Cattle vs. Natural Gas | Feeder Cattle vs. Micro Gold Futures | Feeder Cattle 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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