Correlation Between Oat Futures and Soybean Meal
Can any of the company-specific risk be diversified away by investing in both Oat Futures and Soybean Meal 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 Soybean Meal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oat Futures and Soybean Meal Futures, you can compare the effects of market volatilities on Oat Futures and Soybean Meal 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 Soybean Meal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oat Futures and Soybean Meal.
Diversification Opportunities for Oat Futures and Soybean Meal
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Oat and Soybean is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Oat Futures and Soybean Meal Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soybean Meal 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 Soybean Meal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soybean Meal Futures has no effect on the direction of Oat Futures i.e., Oat Futures and Soybean Meal go up and down completely randomly.
Pair Corralation between Oat Futures and Soybean Meal
Assuming the 90 days horizon Oat Futures is expected to generate 1.28 times more return on investment than Soybean Meal. However, Oat Futures is 1.28 times more volatile than Soybean Meal Futures. It trades about 0.02 of its potential returns per unit of risk. Soybean Meal Futures is currently generating about -0.03 per unit of risk. If you would invest 33,925 in Oat Futures on August 25, 2024 and sell it today you would earn a total of 3,125 from holding Oat Futures or generate 9.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.01% |
| Values | Daily Returns |
Oat Futures vs. Soybean Meal Futures
Performance |
| Timeline |
| Oat Futures |
| Soybean Meal Futures |
Oat Futures and Soybean Meal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oat Futures and Soybean Meal
The main advantage of trading using opposite Oat Futures and Soybean Meal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oat Futures position performs unexpectedly, Soybean Meal 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 Soybean Meal will offset losses from the drop in Soybean Meal's long position.| Oat Futures vs. Class III Milk | Oat Futures vs. Orange Juice | Oat Futures vs. US Dollar | Oat Futures vs. Five Year Treasury Note |
| Soybean Meal vs. Micro Gold Futures | Soybean Meal vs. Crude Oil | Soybean Meal vs. Live Cattle Futures | Soybean Meal vs. 2 Year T Note 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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