Correlation Between Brent Crude and Coffee
Can any of the company-specific risk be diversified away by investing in both Brent Crude and Coffee 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 Brent Crude and Coffee into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brent Crude Oil and Coffee, you can compare the effects of market volatilities on Brent Crude and Coffee 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 Brent Crude with a short position of Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brent Crude and Coffee.
Diversification Opportunities for Brent Crude and Coffee
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Brent and Coffee is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Brent Crude Oil and Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee and Brent Crude 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 Brent Crude Oil are associated (or correlated) with Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee has no effect on the direction of Brent Crude i.e., Brent Crude and Coffee go up and down completely randomly.
Pair Corralation between Brent Crude and Coffee
Assuming the 90 days horizon Brent Crude Oil is expected to under-perform the Coffee. But the commodity apears to be less risky and, when comparing its historical volatility, Brent Crude Oil is 1.26 times less risky than Coffee. The commodity trades about -0.02 of its potential returns per unit of risk. The Coffee is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 23,195 in Coffee on September 3, 2024 and sell it today you would earn a total of 8,610 from holding Coffee or generate 37.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.67% |
| Values | Daily Returns |
Brent Crude Oil vs. Coffee
Performance |
| Timeline |
| Brent Crude Oil |
| Coffee |
Brent Crude and Coffee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brent Crude and Coffee
The main advantage of trading using opposite Brent Crude and Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brent Crude position performs unexpectedly, Coffee 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 Coffee will offset losses from the drop in Coffee's long position.| Brent Crude vs. Class III Milk | Brent Crude vs. Palladium | Brent Crude vs. Lean Hogs Futures | Brent Crude vs. Cotton |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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