Correlation Between Meta Platforms and Feeder Cattle
Can any of the company-specific risk be diversified away by investing in both Meta Platforms and Feeder Cattle 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 Meta Platforms and Feeder Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meta Platforms and Feeder Cattle Futures, you can compare the effects of market volatilities on Meta Platforms and Feeder Cattle 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 Meta Platforms with a short position of Feeder Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meta Platforms and Feeder Cattle.
Diversification Opportunities for Meta Platforms and Feeder Cattle
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Meta and Feeder is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Feeder Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feeder Cattle Futures and Meta Platforms 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 Meta Platforms are associated (or correlated) with Feeder Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feeder Cattle Futures has no effect on the direction of Meta Platforms i.e., Meta Platforms and Feeder Cattle go up and down completely randomly.
Pair Corralation between Meta Platforms and Feeder Cattle
Given the investment horizon of 90 days Meta Platforms is expected to generate 2.5 times more return on investment than Feeder Cattle. However, Meta Platforms is 2.5 times more volatile than Feeder Cattle Futures. It trades about 0.19 of its potential returns per unit of risk. Feeder Cattle Futures is currently generating about 0.2 per unit of risk. If you would invest 57,205 in Meta Platforms on September 7, 2024 and sell it today you would earn a total of 4,017 from holding Meta Platforms or generate 7.02% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Meta Platforms vs. Feeder Cattle Futures
Performance |
Timeline |
Meta Platforms |
Feeder Cattle Futures |
Meta Platforms and Feeder Cattle Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Meta Platforms and Feeder Cattle
The main advantage of trading using opposite Meta Platforms and Feeder Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms position performs unexpectedly, Feeder Cattle 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 Feeder Cattle will offset losses from the drop in Feeder Cattle's long position.Meta Platforms vs. Alphabet Inc Class A | Meta Platforms vs. Twilio Inc | Meta Platforms vs. Snap Inc | Meta Platforms vs. Baidu Inc |
Feeder Cattle vs. E Mini SP 500 | Feeder Cattle vs. Crude Oil | Feeder Cattle vs. Heating Oil | Feeder Cattle vs. Palladium |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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