Correlation Between Natural Gas and Live Cattle
Can any of the company-specific risk be diversified away by investing in both Natural Gas and Live 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 Live 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 Live Cattle Futures, you can compare the effects of market volatilities on Natural Gas and Live 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 Live Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Gas and Live Cattle.
Diversification Opportunities for Natural Gas and Live Cattle
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Natural and Live is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas and Live Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live 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 Live Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Cattle Futures has no effect on the direction of Natural Gas i.e., Natural Gas and Live Cattle go up and down completely randomly.
Pair Corralation between Natural Gas and Live Cattle
Assuming the 90 days horizon Natural Gas is expected to generate 10.93 times more return on investment than Live Cattle. However, Natural Gas is 10.93 times more volatile than Live Cattle Futures. It trades about 0.08 of its potential returns per unit of risk. Live Cattle Futures is currently generating about 0.06 per unit of risk. If you would invest 297.00 in Natural Gas on September 3, 2024 and sell it today you would earn a total of 39.00 from holding Natural Gas or generate 13.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.67% |
| Values | Daily Returns |
Natural Gas vs. Live Cattle Futures
Performance |
| Timeline |
| Natural Gas |
| Live Cattle Futures |
Natural Gas and Live Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Natural Gas and Live Cattle
The main advantage of trading using opposite Natural Gas and Live Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Gas position performs unexpectedly, Live 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 Live Cattle will offset losses from the drop in Live Cattle's long position.| Natural Gas vs. Gasoline RBOB | Natural Gas vs. Lean Hogs Futures | Natural Gas vs. Mini Dow Jones | Natural Gas vs. Heating Oil |
| Live Cattle vs. Micro E mini Russell | Live Cattle vs. US Dollar | Live Cattle vs. Class III Milk | Live Cattle vs. Natural Gas |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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