Correlation Between 30 Day and Lumber Futures

Can any of the company-specific risk be diversified away by investing in both 30 Day and Lumber 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 30 Day and Lumber Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 30 Day Fed and Lumber Futures, you can compare the effects of market volatilities on 30 Day and Lumber 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 30 Day with a short position of Lumber Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of 30 Day and Lumber Futures.

Diversification Opportunities for 30 Day and Lumber Futures

0.8

Correlation Coefficient

30 Day  Lumber Futures

Very poor diversification

The 3 months correlation between ZQUSD and Lumber is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding 30 Day Fed and Lumber Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumber Futures and 30 Day 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 30 Day Fed are associated (or correlated) with Lumber Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumber Futures has no effect on the direction of 30 Day i.e., 30 Day and Lumber Futures go up and down completely randomly.

Pair Corralation between 30 Day and Lumber Futures

Assuming the 90 days horizon 30 Day is expected to generate 22.44 times less return on investment than Lumber Futures. But when comparing it to its historical volatility, 30 Day Fed is 27.52 times less risky than Lumber Futures. It trades about 0.21 of its potential returns per unit of risk. Lumber Futures is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  49,900  in Lumber Futures on September 5, 2024 and sell it today you would earn a total of  9,600  from holding Lumber Futures or generate 19.24% return on investment over 90 days.

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

30 Day Fed  vs.  Lumber Futures

30 Day Fed

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in 30 Day Fed are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, 30 Day is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Lumber Futures

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lumber Futures are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Lumber Futures exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 30 Day and Lumber Futures

The main advantage of trading using opposite 30 Day and Lumber Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 30 Day position performs unexpectedly, Lumber 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 Lumber Futures will offset losses from the drop in Lumber Futures' long position.

The idea behind 30 Day Fed and Lumber 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.