Correlation Between Oat Futures and Heating Oil

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

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

Diversification Opportunities for Oat Futures and Heating Oil

0.25

Correlation Coefficient

Oat Futures  Heating Oil

Modest diversification

The 3 months correlation between Oat and Heating is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Oat Futures and Heating Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heating Oil and Oat Futures 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 Oat Futures are associated (or correlated) with Heating Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heating Oil has no effect on the direction of Oat Futures i.e., Oat Futures and Heating Oil go up and down completely randomly.

Pair Corralation between Oat Futures and Heating Oil

Assuming the 90 days horizon Oat Futures is expected to generate 2.39 times less return on investment than Heating Oil. In addition to that, Oat Futures is 1.35 times more volatile than Heating Oil. It trades about 0.02 of its total potential returns per unit of risk. Heating Oil is currently generating about 0.07 per unit of volatility. If you would invest  211.00  in Heating Oil on September 15, 2024 and sell it today you would earn a total of  16.00  from holding Heating Oil or generate 7.58% return on investment over 90 days.

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

Oat Futures  vs.  Heating Oil

Oat Futures

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Oat Futures are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Oat Futures is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Heating Oil

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Heating Oil are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Heating Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Oat Futures and Heating Oil

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

The idea behind Oat Futures and Heating Oil 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.