Correlation Between Sugar and Gasoline RBOB
Can any of the company-specific risk be diversified away by investing in both Sugar 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 Sugar and Gasoline RBOB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sugar and Gasoline RBOB, you can compare the effects of market volatilities on Sugar 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 Sugar with a short position of Gasoline RBOB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sugar and Gasoline RBOB.
Diversification Opportunities for Sugar and Gasoline RBOB
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Sugar and Gasoline is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Sugar and Gasoline RBOB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gasoline RBOB and Sugar 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 Sugar 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 Sugar i.e., Sugar and Gasoline RBOB go up and down completely randomly.
Pair Corralation between Sugar and Gasoline RBOB
Assuming the 90 days horizon Sugar is expected to generate 0.83 times more return on investment than Gasoline RBOB. However, Sugar is 1.21 times less risky than Gasoline RBOB. It trades about 0.02 of its potential returns per unit of risk. Gasoline RBOB is currently generating about 0.0 per unit of risk. If you would invest 1,955 in Sugar on August 26, 2024 and sell it today you would earn a total of 183.00 from holding Sugar or generate 9.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 97.65% |
| Values | Daily Returns |
Sugar vs. Gasoline RBOB
Performance |
| Timeline |
| Sugar |
| Gasoline RBOB |
Sugar and Gasoline RBOB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sugar and Gasoline RBOB
The main advantage of trading using opposite Sugar and Gasoline RBOB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sugar 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.The idea behind Sugar and Gasoline RBOB pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Gasoline RBOB vs. Crude Oil | Gasoline RBOB vs. Aluminum Futures | Gasoline RBOB vs. Corn Futures | Gasoline RBOB vs. Silver Futures |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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