Correlation Between 2 Year and Crude Oil
Can any of the company-specific risk be diversified away by investing in both 2 Year and Crude Oil 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 2 Year and Crude Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 2 Year T Note Futures and Crude Oil, you can compare the effects of market volatilities on 2 Year and Crude Oil 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 2 Year with a short position of Crude Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of 2 Year and Crude Oil.
Diversification Opportunities for 2 Year and Crude Oil
Very good diversification
The 3 months correlation between ZTUSD and Crude is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding 2 Year T Note Futures and Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crude Oil and 2 Year 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 2 Year T Note Futures are associated (or correlated) with Crude Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crude Oil has no effect on the direction of 2 Year i.e., 2 Year and Crude Oil go up and down completely randomly.
Pair Corralation between 2 Year and Crude Oil
Assuming the 90 days horizon 2 Year is expected to generate 8.89 times less return on investment than Crude Oil. But when comparing it to its historical volatility, 2 Year T Note Futures is 19.39 times less risky than Crude Oil. It trades about 0.04 of its potential returns per unit of risk. Crude Oil is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 7,313 in Crude Oil on November 3, 2024 and sell it today you would earn a total of 31.00 from holding Crude Oil or generate 0.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
2 Year T Note Futures vs. Crude Oil
Performance |
| Timeline |
| 2 Year T |
| Crude Oil |
2 Year and Crude Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 2 Year and Crude Oil
The main advantage of trading using opposite 2 Year and Crude Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 2 Year position performs unexpectedly, Crude Oil 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 Crude Oil will offset losses from the drop in Crude Oil's long position.| 2 Year vs. Class III Milk | 2 Year vs. Live Cattle Futures | 2 Year vs. Heating Oil | 2 Year vs. Corn Futures |
| Crude Oil vs. 10 Year T Note Futures | Crude Oil vs. Nasdaq 100 | Crude Oil vs. Oat Futures | Crude Oil vs. Wheat 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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