Correlation Between Five Year and Brent Crude
Can any of the company-specific risk be diversified away by investing in both Five Year and Brent Crude 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 Five Year and Brent Crude into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Five Year Treasury Note and Brent Crude Oil, you can compare the effects of market volatilities on Five Year and Brent Crude 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 Five Year with a short position of Brent Crude. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and Brent Crude.
Diversification Opportunities for Five Year and Brent Crude
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Five and Brent is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note and Brent Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brent Crude Oil and Five Year 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 Five Year Treasury Note are associated (or correlated) with Brent Crude. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brent Crude Oil has no effect on the direction of Five Year i.e., Five Year and Brent Crude go up and down completely randomly.
Pair Corralation between Five Year and Brent Crude
Assuming the 90 days horizon Five Year Treasury Note is expected to generate 0.15 times more return on investment than Brent Crude. However, Five Year Treasury Note is 6.49 times less risky than Brent Crude. It trades about 0.01 of its potential returns per unit of risk. Brent Crude Oil is currently generating about 0.0 per unit of risk. If you would invest 10,634 in Five Year Treasury Note on November 3, 2024 and sell it today you would earn a total of 5.00 from holding Five Year Treasury Note or generate 0.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Five Year Treasury Note vs. Brent Crude Oil
Performance |
| Timeline |
| Five Year Treasury |
| Brent Crude Oil |
Five Year and Brent Crude Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and Brent Crude
The main advantage of trading using opposite Five Year and Brent Crude positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year position performs unexpectedly, Brent Crude 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 Brent Crude will offset losses from the drop in Brent Crude's long position.| Five Year vs. Mini Dow Jones | Five Year vs. Gasoline RBOB | Five Year vs. Rough Rice Futures | Five Year vs. Platinum |
| Brent Crude vs. Micro Gold Futures | Brent Crude vs. Live Cattle Futures | Brent Crude vs. Class III Milk | Brent Crude vs. Soybean 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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