Correlation Between Live Cattle and Sugar

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

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

Diversification Opportunities for Live Cattle and Sugar

0.48

Correlation Coefficient

Live Cattle  Sugar

Very weak diversification

The 3 months correlation between Live and Sugar is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Live Cattle Futures and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar and Live 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 Live Cattle Futures are associated (or correlated) with Sugar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sugar has no effect on the direction of Live Cattle i.e., Live Cattle and Sugar go up and down completely randomly.

Pair Corralation between Live Cattle and Sugar

Assuming the 90 days horizon Live Cattle is expected to generate 1.64 times less return on investment than Sugar. But when comparing it to its historical volatility, Live Cattle Futures is 3.06 times less risky than Sugar. It trades about 0.19 of its potential returns per unit of risk. Sugar is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,907  in Sugar on September 12, 2024 and sell it today you would earn a total of  225.00  from holding Sugar or generate 11.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Live Cattle Futures  vs.  Sugar

Live Cattle Futures

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Live Cattle Futures are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Live Cattle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sugar

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sugar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Sugar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Live Cattle and Sugar

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

The idea behind Live Cattle Futures and Sugar 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.