Correlation Between Five Year and Wheat Futures
Can any of the company-specific risk be diversified away by investing in both Five Year and Wheat Futures 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 Wheat Futures 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 Wheat Futures, you can compare the effects of market volatilities on Five Year and Wheat Futures 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 Wheat Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and Wheat Futures.
Diversification Opportunities for Five Year and Wheat Futures
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Five and Wheat is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note and Wheat Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wheat 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 Wheat Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wheat Futures has no effect on the direction of Five Year i.e., Five Year and Wheat Futures go up and down completely randomly.
Pair Corralation between Five Year and Wheat Futures
Assuming the 90 days horizon Five Year Treasury Note is expected to generate 0.11 times more return on investment than Wheat Futures. However, Five Year Treasury Note is 9.19 times less risky than Wheat Futures. It trades about 0.05 of its potential returns per unit of risk. Wheat Futures is currently generating about -0.26 per unit of risk. If you would invest 10,717 in Five Year Treasury Note on September 3, 2024 and sell it today you would earn a total of 23.00 from holding Five Year Treasury Note or generate 0.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Five Year Treasury Note vs. Wheat Futures
Performance |
| Timeline |
| Five Year Treasury |
| Wheat Futures |
Five Year and Wheat Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and Wheat Futures
The main advantage of trading using opposite Five Year and Wheat Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year position performs unexpectedly, Wheat Futures 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 Wheat Futures will offset losses from the drop in Wheat Futures' long position.| Five Year vs. Oat Futures | Five Year vs. Wheat Futures | Five Year vs. Feeder Cattle Futures | Five Year vs. Micro Silver Futures |
| Wheat Futures vs. Micro E mini Russell | Wheat Futures vs. US Dollar | Wheat Futures vs. Five Year Treasury Note | Wheat Futures vs. Class III Milk |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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