Correlation Between Oat Futures and Lumber Futures
Can any of the company-specific risk be diversified away by investing in both Oat Futures and Lumber Futures 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 Oat Futures and Lumber Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oat Futures and Lumber Futures, you can compare the effects of market volatilities on Oat Futures and Lumber Futures 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 Oat Futures with a short position of Lumber Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oat Futures and Lumber Futures.
Diversification Opportunities for Oat Futures and Lumber Futures
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Oat and Lumber is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Oat Futures and Lumber Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumber Futures and Oat Futures 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 Oat Futures are associated (or correlated) with Lumber Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumber Futures has no effect on the direction of Oat Futures i.e., Oat Futures and Lumber Futures go up and down completely randomly.
Pair Corralation between Oat Futures and Lumber Futures
Assuming the 90 days horizon Oat Futures is expected to under-perform the Lumber Futures. In addition to that, Oat Futures is 1.36 times more volatile than Lumber Futures. It trades about -0.15 of its total potential returns per unit of risk. Lumber Futures is currently generating about 0.17 per unit of volatility. If you would invest 54,950 in Lumber Futures on September 1, 2024 and sell it today you would earn a total of 3,950 from holding Lumber Futures or generate 7.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Oat Futures vs. Lumber Futures
Performance |
| Timeline |
| Oat Futures |
| Lumber Futures |
Oat Futures and Lumber Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oat Futures and Lumber Futures
The main advantage of trading using opposite Oat Futures and Lumber Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oat Futures position performs unexpectedly, Lumber Futures 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 Lumber Futures will offset losses from the drop in Lumber Futures' long position.| Oat Futures vs. 2 Year T Note Futures | Oat Futures vs. Heating Oil | Oat Futures vs. Crude Oil | Oat Futures vs. Aluminum Futures |
| Lumber Futures vs. Aluminum Futures | Lumber Futures vs. Live Cattle Futures | Lumber Futures vs. Micro E mini Russell | Lumber Futures vs. Corn 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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