Correlation Between Soybean Meal and Five Year

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

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

Diversification Opportunities for Soybean Meal and Five Year

0.82

Correlation Coefficient

Soybean Meal  Five Year

Very poor diversification

The 3 months correlation between Soybean and Five is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Soybean Meal Futures and Five Year Treasury Note in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Year Treasury and Soybean Meal 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 Soybean Meal Futures are associated (or correlated) with Five Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Year Treasury has no effect on the direction of Soybean Meal i.e., Soybean Meal and Five Year go up and down completely randomly.

Pair Corralation between Soybean Meal and Five Year

Assuming the 90 days horizon Soybean Meal Futures is expected to under-perform the Five Year. In addition to that, Soybean Meal is 6.44 times more volatile than Five Year Treasury Note. It trades about -0.11 of its total potential returns per unit of risk. Five Year Treasury Note is currently generating about -0.15 per unit of volatility. If you would invest  10,965  in Five Year Treasury Note on September 5, 2024 and sell it today you would lose (221.00) from holding Five Year Treasury Note or give up 2.02% of portfolio value over 90 days.

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

Soybean Meal Futures  vs.  Five Year Treasury Note

Soybean Meal Futures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Soybean Meal Futures 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 Soybean Meal Futures shareholders.

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.

Pair Trading with Soybean Meal and Five Year

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

The idea behind Soybean Meal Futures and Five Year Treasury Note 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.