Correlation Between Five Year and Live Cattle
Can any of the company-specific risk be diversified away by investing in both Five Year and Live 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 Live 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 Live Cattle Futures, you can compare the effects of market volatilities on Five Year and Live 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 Live Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and Live Cattle.
Diversification Opportunities for Five Year and Live Cattle
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Five and Live is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note and Live Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live 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 Live Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Cattle Futures has no effect on the direction of Five Year i.e., Five Year and Live Cattle go up and down completely randomly.
Pair Corralation between Five Year and Live Cattle
Assuming the 90 days horizon Five Year Treasury Note is expected to under-perform the Live Cattle. But the commodity apears to be less risky and, when comparing its historical volatility, Five Year Treasury Note is 4.45 times less risky than Live Cattle. The commodity trades about -0.02 of its potential returns per unit of risk. The Live Cattle Futures is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 16,395 in Live Cattle Futures on November 27, 2024 and sell it today you would earn a total of 3,115 from holding Live Cattle Futures or generate 19.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 97.54% |
| Values | Daily Returns |
Five Year Treasury Note vs. Live Cattle Futures
Performance |
| Timeline |
| Five Year Treasury |
| Live Cattle Futures |
Five Year and Live Cattle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and Live Cattle
The main advantage of trading using opposite Five Year and Live Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year position performs unexpectedly, Live 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 Live Cattle will offset losses from the drop in Live Cattle's long position.| Five Year vs. Gasoline RBOB | Five Year vs. Micro E mini Russell | Five Year vs. 10 Year T Note Futures | Five Year vs. Soybean Meal Futures |
| Live Cattle vs. Micro E mini Russell | Live Cattle vs. Cocoa | Live Cattle vs. Corn Futures | Live Cattle vs. US Dollar |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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