Correlation Between Micro E and Soybean Meal
Can any of the company-specific risk be diversified away by investing in both Micro E and Soybean Meal 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 Soybean Meal 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 Soybean Meal Futures, you can compare the effects of market volatilities on Micro E and Soybean Meal 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 Soybean Meal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro E and Soybean Meal.
Diversification Opportunities for Micro E and Soybean Meal
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Micro and Soybean is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Micro E mini Russell and Soybean Meal Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soybean Meal 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 Soybean Meal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soybean Meal Futures has no effect on the direction of Micro E i.e., Micro E and Soybean Meal go up and down completely randomly.
Pair Corralation between Micro E and Soybean Meal
Assuming the 90 days trading horizon Micro E mini Russell is expected to generate 1.37 times more return on investment than Soybean Meal. However, Micro E is 1.37 times more volatile than Soybean Meal Futures. It trades about 0.14 of its potential returns per unit of risk. Soybean Meal Futures is currently generating about -0.36 per unit of risk. If you would invest 224,920 in Micro E mini Russell on August 29, 2024 and sell it today you would earn a total of 18,730 from holding Micro E mini Russell or generate 8.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Micro E mini Russell vs. Soybean Meal Futures
Performance |
| Timeline |
| Micro E mini |
| Soybean Meal Futures |
Micro E and Soybean Meal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Micro E and Soybean Meal
The main advantage of trading using opposite Micro E and Soybean Meal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro E position performs unexpectedly, Soybean Meal 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 Soybean Meal will offset losses from the drop in Soybean Meal'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 |
| Soybean Meal vs. Aluminum Futures | Soybean Meal vs. Natural Gas | Soybean Meal vs. 30 Day Fed | Soybean Meal vs. Five Year Treasury Note |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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