Correlation Between Sugar and Soybean Meal
Can any of the company-specific risk be diversified away by investing in both Sugar 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 Sugar and Soybean Meal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sugar and Soybean Meal Futures, you can compare the effects of market volatilities on Sugar 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 Sugar with a short position of Soybean Meal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sugar and Soybean Meal.
Diversification Opportunities for Sugar and Soybean Meal
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Sugar and Soybean is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Sugar 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 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 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 Sugar i.e., Sugar and Soybean Meal go up and down completely randomly.
Pair Corralation between Sugar and Soybean Meal
Assuming the 90 days horizon Sugar is expected to generate 1.01 times more return on investment than Soybean Meal. However, Sugar is 1.01 times more volatile than Soybean Meal Futures. It trades about 0.02 of its potential returns per unit of risk. Soybean Meal Futures is currently generating about -0.03 per unit of risk. If you would invest 1,955 in Sugar on August 25, 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 | 99.6% |
| Values | Daily Returns |
Sugar vs. Soybean Meal Futures
Performance |
| Timeline |
| Sugar |
| Soybean Meal Futures |
Sugar and Soybean Meal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sugar and Soybean Meal
The main advantage of trading using opposite Sugar and Soybean Meal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sugar 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.The idea behind Sugar and Soybean Meal Futures 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.| Soybean Meal vs. Micro Gold Futures | Soybean Meal vs. Crude Oil | Soybean Meal vs. Live Cattle Futures | Soybean Meal vs. 2 Year T Note 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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