Correlation Between Soybean Meal and Copper
Can any of the company-specific risk be diversified away by investing in both Soybean Meal and Copper 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 Copper 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 Copper, you can compare the effects of market volatilities on Soybean Meal and Copper 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 Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Soybean Meal and Copper.
Diversification Opportunities for Soybean Meal and Copper
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Soybean and Copper is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Soybean Meal Futures and Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copper 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 Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copper has no effect on the direction of Soybean Meal i.e., Soybean Meal and Copper go up and down completely randomly.
Pair Corralation between Soybean Meal and Copper
Assuming the 90 days horizon Soybean Meal Futures is expected to generate 0.48 times more return on investment than Copper. However, Soybean Meal Futures is 2.08 times less risky than Copper. It trades about -0.22 of its potential returns per unit of risk. Copper is currently generating about -0.11 per unit of risk. If you would invest 30,480 in Soybean Meal Futures on August 29, 2024 and sell it today you would lose (1,340) from holding Soybean Meal Futures or give up 4.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Soybean Meal Futures vs. Copper
Performance |
| Timeline |
| Soybean Meal Futures |
| Copper |
Soybean Meal and Copper Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Soybean Meal and Copper
The main advantage of trading using opposite Soybean Meal and Copper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Soybean Meal position performs unexpectedly, Copper 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 Copper will offset losses from the drop in Copper's long position.| Soybean Meal vs. Aluminum Futures | Soybean Meal vs. Natural Gas | Soybean Meal vs. 30 Day Fed | Soybean Meal vs. Five Year Treasury Note |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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