Correlation Between Soybean Meal and Five Year
Can any of the company-specific risk be diversified away by investing in both Soybean Meal and Five Year 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 Five Year 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 Five Year Treasury Note, you can compare the effects of market volatilities on Soybean Meal and Five Year 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 Five Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Soybean Meal and Five Year.
Diversification Opportunities for Soybean Meal and Five Year
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Soybean and Five is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Soybean Meal Futures and Five Year Treasury Note in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Year Treasury 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 Five Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Year Treasury has no effect on the direction of Soybean Meal i.e., Soybean Meal and Five Year go up and down completely randomly.
Pair Corralation between Soybean Meal and Five Year
Assuming the 90 days horizon Soybean Meal Futures is expected to under-perform the Five Year. In addition to that, Soybean Meal is 5.85 times more volatile than Five Year Treasury Note. It trades about -0.17 of its total potential returns per unit of risk. Five Year Treasury Note is currently generating about 0.08 per unit of volatility. If you would invest 10,723 in Five Year Treasury Note on September 1, 2024 and sell it today you would earn a total of 37.00 from holding Five Year Treasury Note or generate 0.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 91.3% |
| Values | Daily Returns |
Soybean Meal Futures vs. Five Year Treasury Note
Performance |
| Timeline |
| Soybean Meal Futures |
| Five Year Treasury |
Soybean Meal and Five Year Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Soybean Meal and Five Year
The main advantage of trading using opposite Soybean Meal and Five Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Soybean Meal position performs unexpectedly, Five Year 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 Five Year will offset losses from the drop in Five Year's long position.| Soybean Meal vs. Five Year Treasury Note | Soybean Meal vs. Cocoa | Soybean Meal vs. Micro Silver Futures | Soybean Meal vs. Wheat Futures |
| Five Year vs. Cocoa | Five Year vs. E Mini SP 500 | Five Year vs. Aluminum Futures | Five Year vs. Live Cattle 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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