Correlation Between Mini Dow and Feeder Cattle
Can any of the company-specific risk be diversified away by investing in both Mini Dow and Feeder 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 Mini Dow and Feeder Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mini Dow Jones and Feeder Cattle Futures, you can compare the effects of market volatilities on Mini Dow and Feeder 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 Mini Dow with a short position of Feeder Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mini Dow and Feeder Cattle.
Diversification Opportunities for Mini Dow and Feeder Cattle
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Mini and Feeder is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Mini Dow Jones and Feeder Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feeder Cattle Futures and Mini Dow 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 Mini Dow Jones are associated (or correlated) with Feeder Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feeder Cattle Futures has no effect on the direction of Mini Dow i.e., Mini Dow and Feeder Cattle go up and down completely randomly.
Pair Corralation between Mini Dow and Feeder Cattle
Assuming the 90 days horizon Mini Dow Jones is expected to generate 0.79 times more return on investment than Feeder Cattle. However, Mini Dow Jones is 1.27 times less risky than Feeder Cattle. It trades about 0.13 of its potential returns per unit of risk. Feeder Cattle Futures is currently generating about 0.06 per unit of risk. If you would invest 3,548,800 in Mini Dow Jones on August 25, 2024 and sell it today you would earn a total of 892,900 from holding Mini Dow Jones or generate 25.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.28% |
| Values | Daily Returns |
Mini Dow Jones vs. Feeder Cattle Futures
Performance |
| Timeline |
| Mini Dow Jones |
| Feeder Cattle Futures |
Mini Dow and Feeder Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mini Dow and Feeder Cattle
The main advantage of trading using opposite Mini Dow and Feeder Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mini Dow position performs unexpectedly, Feeder 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 Feeder Cattle will offset losses from the drop in Feeder Cattle's long position.The idea behind Mini Dow Jones and Feeder Cattle 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.| Feeder Cattle vs. Heating Oil | Feeder Cattle vs. Crude Oil | Feeder Cattle vs. Aluminum Futures | Feeder Cattle vs. Corn 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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