Correlation Between Micro E and 2 Year
Can any of the company-specific risk be diversified away by investing in both Micro E and 2 Year 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 2 Year 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 2 Year T Note Futures, you can compare the effects of market volatilities on Micro E and 2 Year 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 2 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro E and 2 Year.
Diversification Opportunities for Micro E and 2 Year
Excellent diversification
The 3 months correlation between Micro and ZTUSD is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Micro E mini Russell and 2 Year T Note Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2 Year T 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 2 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2 Year T has no effect on the direction of Micro E i.e., Micro E and 2 Year go up and down completely randomly.
Pair Corralation between Micro E and 2 Year
Assuming the 90 days trading horizon Micro E mini Russell is expected to generate 22.61 times more return on investment than 2 Year. However, Micro E is 22.61 times more volatile than 2 Year T Note Futures. It trades about 0.29 of its potential returns per unit of risk. 2 Year T Note Futures is currently generating about -0.08 per unit of risk. If you would invest 220,860 in Micro E mini Russell on September 1, 2024 and sell it today you would earn a total of 23,600 from holding Micro E mini Russell or generate 10.69% 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. 2 Year T Note Futures
Performance |
| Timeline |
| Micro E mini |
| 2 Year T |
Micro E and 2 Year Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Micro E and 2 Year
The main advantage of trading using opposite Micro E and 2 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro E position performs unexpectedly, 2 Year 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 2 Year will offset losses from the drop in 2 Year's long position.| Micro E vs. Natural Gas | Micro E vs. Five Year Treasury Note | Micro E vs. Micro Gold Futures | Micro E vs. Class III Milk |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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