Correlation Between Five Year and Natural Gas
Can any of the company-specific risk be diversified away by investing in both Five Year and Natural Gas 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 Natural Gas 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 Natural Gas, you can compare the effects of market volatilities on Five Year and Natural Gas 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 Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Year and Natural Gas.
Diversification Opportunities for Five Year and Natural Gas
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Five and Natural is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note and Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas 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 Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas has no effect on the direction of Five Year i.e., Five Year and Natural Gas go up and down completely randomly.
Pair Corralation between Five Year and Natural Gas
Assuming the 90 days horizon Five Year is expected to generate 270.14 times less return on investment than Natural Gas. But when comparing it to its historical volatility, Five Year Treasury Note is 17.87 times less risky than Natural Gas. It trades about 0.0 of its potential returns per unit of risk. Natural Gas is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 271.00 in Natural Gas on August 24, 2024 and sell it today you would earn a total of 65.00 from holding Natural Gas or generate 23.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Five Year Treasury Note vs. Natural Gas
Performance |
| Timeline |
| Five Year Treasury |
| Natural Gas |
Five Year and Natural Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Year and Natural Gas
The main advantage of trading using opposite Five Year and Natural Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year position performs unexpectedly, Natural Gas 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 Natural Gas will offset losses from the drop in Natural Gas' long position.| Five Year vs. US Dollar | Five Year vs. Orange Juice | Five Year vs. Live Cattle Futures | Five Year vs. Micro Gold Futures |
| Natural Gas vs. Micro Gold Futures | Natural Gas vs. Cotton | Natural Gas vs. Five Year Treasury Note | Natural Gas vs. Palladium |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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