Correlation Between Natural Gas and Gasoline RBOB
Can any of the company-specific risk be diversified away by investing in both Natural Gas and Gasoline RBOB 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 Gasoline RBOB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Natural Gas and Gasoline RBOB, you can compare the effects of market volatilities on Natural Gas and Gasoline RBOB 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 Gasoline RBOB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Gas and Gasoline RBOB.
Diversification Opportunities for Natural Gas and Gasoline RBOB
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Natural and Gasoline is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas and Gasoline RBOB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gasoline RBOB 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 Gasoline RBOB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gasoline RBOB has no effect on the direction of Natural Gas i.e., Natural Gas and Gasoline RBOB go up and down completely randomly.
Pair Corralation between Natural Gas and Gasoline RBOB
Assuming the 90 days horizon Natural Gas is expected to under-perform the Gasoline RBOB. In addition to that, Natural Gas is 4.64 times more volatile than Gasoline RBOB. It trades about -0.12 of its total potential returns per unit of risk. Gasoline RBOB is currently generating about 0.02 per unit of volatility. If you would invest 205.00 in Gasoline RBOB on November 3, 2024 and sell it today you would earn a total of 1.00 from holding Gasoline RBOB or generate 0.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Natural Gas vs. Gasoline RBOB
Performance |
| Timeline |
| Natural Gas |
| Gasoline RBOB |
Natural Gas and Gasoline RBOB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Natural Gas and Gasoline RBOB
The main advantage of trading using opposite Natural Gas and Gasoline RBOB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Gas position performs unexpectedly, Gasoline RBOB 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 Gasoline RBOB will offset losses from the drop in Gasoline RBOB's long position.| Natural Gas vs. Lumber Futures | Natural Gas vs. US Dollar | Natural Gas vs. Cotton | Natural Gas vs. Micro Gold Futures |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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