Correlation Between Micro E and Live Cattle
Can any of the company-specific risk be diversified away by investing in both Micro E 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 Micro E and Live Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Micro E mini Russell and Live Cattle Futures, you can compare the effects of market volatilities on Micro E 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 Micro E with a short position of Live Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro E and Live Cattle.
Diversification Opportunities for Micro E and Live Cattle
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Micro and Live is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Micro E mini Russell 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 Micro E 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 Micro E mini Russell 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 Micro E i.e., Micro E and Live Cattle go up and down completely randomly.
Pair Corralation between Micro E and Live Cattle
Assuming the 90 days trading horizon Micro E mini Russell is expected to generate 1.71 times more return on investment than Live Cattle. However, Micro E is 1.71 times more volatile than Live Cattle Futures. It trades about 0.1 of its potential returns per unit of risk. Live Cattle Futures is currently generating about 0.04 per unit of risk. If you would invest 207,580 in Micro E mini Russell on August 29, 2024 and sell it today you would earn a total of 36,190 from holding Micro E mini Russell or generate 17.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.67% |
| Values | Daily Returns |
Micro E mini Russell vs. Live Cattle Futures
Performance |
| Timeline |
| Micro E mini |
| Live Cattle Futures |
Micro E and Live Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Micro E and Live Cattle
The main advantage of trading using opposite Micro E and Live Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro E 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.| Micro E vs. Soybean Meal Futures | Micro E vs. Five Year Treasury Note | Micro E vs. Lean Hogs Futures | Micro E vs. Aluminum Futures |
| Live Cattle vs. Cocoa | Live Cattle vs. Corn Futures | Live Cattle vs. Soybean Futures | Live Cattle vs. Nasdaq 100 |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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