Correlation Between Soybean Meal and Natural Gas
Can any of the company-specific risk be diversified away by investing in both Soybean Meal 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 Soybean Meal and Natural Gas 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 Natural Gas, you can compare the effects of market volatilities on Soybean Meal 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 Soybean Meal with a short position of Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Soybean Meal and Natural Gas.
Diversification Opportunities for Soybean Meal and Natural Gas
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Soybean and Natural is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Soybean Meal Futures and Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas 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 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 Soybean Meal i.e., Soybean Meal and Natural Gas go up and down completely randomly.
Pair Corralation between Soybean Meal and Natural Gas
Assuming the 90 days horizon Soybean Meal Futures is expected to under-perform the Natural Gas. But the commodity apears to be less risky and, when comparing its historical volatility, Soybean Meal Futures is 7.3 times less risky than Natural Gas. The commodity trades about -0.22 of its potential returns per unit of risk. The Natural Gas is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 231.00 in Natural Gas on August 29, 2024 and sell it today you would earn a total of 117.00 from holding Natural Gas or generate 50.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Soybean Meal Futures vs. Natural Gas
Performance |
| Timeline |
| Soybean Meal Futures |
| Natural Gas |
Soybean Meal and Natural Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Soybean Meal and Natural Gas
The main advantage of trading using opposite Soybean Meal and Natural Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Soybean Meal 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.| Soybean Meal vs. Aluminum Futures | Soybean Meal vs. Natural Gas | Soybean Meal vs. 30 Day Fed | Soybean Meal vs. Five Year Treasury Note |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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