Correlation Between Five Year and Feeder Cattle
Can any of the company-specific risk be diversified away by investing in both Five Year 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 Five Year and Feeder Cattle 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 Feeder Cattle Futures, you can compare the effects of market volatilities on Five Year 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 Five Year with a short position of Feeder Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and Feeder Cattle.
Diversification Opportunities for Five Year and Feeder Cattle
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Five and Feeder is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note 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 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 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 Five Year i.e., Five Year and Feeder Cattle go up and down completely randomly.
Pair Corralation between Five Year and Feeder Cattle
Assuming the 90 days horizon Five Year is expected to generate 2.96 times less return on investment than Feeder Cattle. But when comparing it to its historical volatility, Five Year Treasury Note is 3.87 times less risky than Feeder Cattle. It trades about 0.2 of its potential returns per unit of risk. Feeder Cattle Futures is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 26,825 in Feeder Cattle Futures on December 6, 2024 and sell it today you would earn a total of 785.00 from holding Feeder Cattle Futures or generate 2.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Five Year Treasury Note vs. Feeder Cattle Futures
Performance |
| Timeline |
| Five Year Treasury |
| Feeder Cattle Futures |
Five Year and Feeder Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and Feeder Cattle
The main advantage of trading using opposite Five Year and Feeder Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year 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.| Five Year vs. Lean Hogs Futures | Five Year vs. Micro Gold Futures | Five Year vs. Class III Milk | Five Year vs. Micro E mini Russell |
| Feeder Cattle vs. US Dollar | Feeder Cattle vs. Natural Gas | Feeder Cattle vs. Micro Gold Futures | Feeder Cattle vs. Lumber 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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