Correlation Between Five Year and Corn Futures

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

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

Diversification Opportunities for Five Year and Corn Futures

-0.53

Correlation Coefficient

Five Year  Corn Futures

Excellent diversification

The 3 months correlation between Five and Corn is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Five Year Treasury Note and Corn Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corn Futures and Five 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 Five Year Treasury Note 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 Five Year i.e., Five Year and Corn Futures go up and down completely randomly.

Pair Corralation between Five Year and Corn Futures

Assuming the 90 days horizon Five Year Treasury Note is expected to under-perform the Corn Futures. But the commodity apears to be less risky and, when comparing its historical volatility, Five Year Treasury Note is 5.05 times less risky than Corn Futures. The commodity trades about -0.13 of its potential returns per unit of risk. The Corn Futures is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  41,275  in Corn Futures on September 4, 2024 and sell it today you would earn a total of  1,975  from holding Corn Futures or generate 4.78% return on investment over 90 days.

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

Five Year Treasury Note  vs.  Corn Futures

Five Year Treasury

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Five Year Treasury Note has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Five Year is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Corn Futures

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Corn Futures are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Corn Futures is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Five Year and Corn Futures

The main advantage of trading using opposite Five Year and Corn Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Year 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 Five Year Treasury Note 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.