Correlation Between Class III and Lumber Futures

Can any of the company-specific risk be diversified away by investing in both Class III 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 Class III and Lumber Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Class III Milk and Lumber Futures, you can compare the effects of market volatilities on Class III 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 Class III with a short position of Lumber Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and Lumber Futures.

Diversification Opportunities for Class III and Lumber Futures

-0.84

Correlation Coefficient

Class III  Lumber Futures

Pay attention - limited upside

The 3 months correlation between Class and Lumber is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and Lumber Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumber Futures and Class III 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 Class III Milk 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 Class III i.e., Class III and Lumber Futures go up and down completely randomly.

Pair Corralation between Class III and Lumber Futures

Assuming the 90 days horizon Class III Milk is expected to under-perform the Lumber Futures. In addition to that, Class III is 1.5 times more volatile than Lumber Futures. It trades about -0.08 of its total potential returns per unit of risk. Lumber Futures is currently generating about 0.09 per unit of volatility. If you would invest  50,950  in Lumber Futures on September 14, 2024 and sell it today you would earn a total of  4,450  from holding Lumber Futures or generate 8.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Class III Milk  vs.  Lumber Futures

Class III Milk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Class III Milk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Commodity's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Class III Milk shareholders.

Lumber Futures

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lumber Futures are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lumber Futures may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Class III and Lumber Futures

The main advantage of trading using opposite Class III and Lumber Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Class III 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.

The idea behind Class III Milk and Lumber Futures 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.