Correlation Between Soybean Meal and Lean Hogs
Can any of the company-specific risk be diversified away by investing in both Soybean Meal and Lean Hogs 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 Soybean Meal and Lean Hogs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Soybean Meal Futures and Lean Hogs Futures, you can compare the effects of market volatilities on Soybean Meal and Lean Hogs 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 Soybean Meal with a short position of Lean Hogs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Soybean Meal and Lean Hogs.
Diversification Opportunities for Soybean Meal and Lean Hogs
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Soybean and Lean is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Soybean Meal Futures and Lean Hogs Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lean Hogs Futures and Soybean Meal 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 Soybean Meal Futures are associated (or correlated) with Lean Hogs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lean Hogs Futures has no effect on the direction of Soybean Meal i.e., Soybean Meal and Lean Hogs go up and down completely randomly.
Pair Corralation between Soybean Meal and Lean Hogs
Assuming the 90 days horizon Soybean Meal Futures is expected to under-perform the Lean Hogs. But the commodity apears to be less risky and, when comparing its historical volatility, Soybean Meal Futures is 1.1 times less risky than Lean Hogs. The commodity trades about -0.2 of its potential returns per unit of risk. The Lean Hogs Futures is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 8,323 in Lean Hogs Futures on September 3, 2024 and sell it today you would lose (115.00) from holding Lean Hogs Futures or give up 1.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Soybean Meal Futures vs. Lean Hogs Futures
Performance |
| Timeline |
| Soybean Meal Futures |
| Lean Hogs Futures |
Soybean Meal and Lean Hogs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Soybean Meal and Lean Hogs
The main advantage of trading using opposite Soybean Meal and Lean Hogs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Soybean Meal position performs unexpectedly, Lean Hogs 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 Lean Hogs will offset losses from the drop in Lean Hogs' long position.| Soybean Meal vs. Orange Juice | Soybean Meal vs. Five Year Treasury Note | Soybean Meal vs. Lumber Futures | Soybean Meal vs. Cotton |
| Lean Hogs vs. Cotton | Lean Hogs vs. US Dollar | Lean Hogs vs. Live Cattle Futures | Lean Hogs vs. Aluminum 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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