Correlation Between Feeder Cattle and Corn Futures

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

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

Diversification Opportunities for Feeder Cattle and Corn Futures

0.66

Correlation Coefficient

Feeder Cattle  Corn Futures

Poor diversification

The 3 months correlation between Feeder and Corn is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Feeder Cattle Futures and Corn Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corn Futures and Feeder Cattle 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 Feeder Cattle Futures are associated (or correlated) with Corn Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corn Futures has no effect on the direction of Feeder Cattle i.e., Feeder Cattle and Corn Futures go up and down completely randomly.

Pair Corralation between Feeder Cattle and Corn Futures

Assuming the 90 days horizon Feeder Cattle is expected to generate 1.16 times less return on investment than Corn Futures. But when comparing it to its historical volatility, Feeder Cattle Futures is 1.78 times less risky than Corn Futures. It trades about 0.18 of its potential returns per unit of risk. Corn Futures is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  41,075  in Corn Futures on September 14, 2024 and sell it today you would earn a total of  3,275  from holding Corn Futures or generate 7.97% return on investment over 90 days.

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

Feeder Cattle Futures  vs.  Corn Futures

Feeder Cattle Futures

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Feeder Cattle Futures are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Feeder Cattle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Corn Futures

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Corn Futures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Corn Futures may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Feeder Cattle and Corn Futures

The main advantage of trading using opposite Feeder Cattle and Corn Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Feeder Cattle position performs unexpectedly, Corn 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 Corn Futures will offset losses from the drop in Corn Futures' long position.

The idea behind Feeder Cattle Futures and Corn 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.