Correlation Between 30 Day and E Mini
Can any of the company-specific risk be diversified away by investing in both 30 Day and E Mini 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 30 Day and E Mini into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 30 Day Fed and E Mini SP 500, you can compare the effects of market volatilities on 30 Day and E Mini 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 30 Day with a short position of E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of 30 Day and E Mini.
Diversification Opportunities for 30 Day and E Mini
Very poor diversification
The 3 months correlation between ZQUSD and ESUSD is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding 30 Day Fed and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP and 30 Day 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 30 Day Fed are associated (or correlated) with E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of 30 Day i.e., 30 Day and E Mini go up and down completely randomly.
Pair Corralation between 30 Day and E Mini
Assuming the 90 days horizon 30 Day is expected to generate 94.44 times less return on investment than E Mini. But when comparing it to its historical volatility, 30 Day Fed is 9.91 times less risky than E Mini. It trades about 0.01 of its potential returns per unit of risk. E Mini SP 500 is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 396,575 in E Mini SP 500 on August 29, 2024 and sell it today you would earn a total of 204,925 from holding E Mini SP 500 or generate 51.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.22% |
| Values | Daily Returns |
30 Day Fed vs. E Mini SP 500
Performance |
| Timeline |
| 30 Day Fed |
| E Mini SP |
30 Day and E Mini Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 30 Day and E Mini
The main advantage of trading using opposite 30 Day and E Mini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 30 Day position performs unexpectedly, E Mini 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 E Mini will offset losses from the drop in E Mini's long position.The idea behind 30 Day Fed and E Mini SP 500 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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