Correlation Between Five Year and E Mini
Can any of the company-specific risk be diversified away by investing in both Five Year and E Mini 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 E Mini 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 E Mini SP 500, you can compare the effects of market volatilities on Five Year and E Mini 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 E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and E Mini.
Diversification Opportunities for Five Year and E Mini
Good diversification
The 3 months correlation between Five and ESUSD is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP 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 E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Five Year i.e., Five Year and E Mini go up and down completely randomly.
Pair Corralation between Five Year and E Mini
Assuming the 90 days horizon Five Year is expected to generate 5.1 times less return on investment than E Mini. But when comparing it to its historical volatility, Five Year Treasury Note is 3.73 times less risky than E Mini. It trades about 0.02 of its potential returns per unit of risk. E Mini SP 500 is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 603,600 in E Mini SP 500 on October 22, 2024 and sell it today you would earn a total of 2,775 from holding E Mini SP 500 or generate 0.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Five Year Treasury Note vs. E Mini SP 500
Performance |
| Timeline |
| Five Year Treasury |
| E Mini SP |
Five Year and E Mini Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and E Mini
The main advantage of trading using opposite Five Year and E Mini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year position performs unexpectedly, E Mini 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 E Mini will offset losses from the drop in E Mini's long position.| Five Year vs. E Mini SP 500 | Five Year vs. 30 Day Fed | Five Year vs. Cotton | Five Year vs. Brent Crude Oil |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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