Correlation Between Cocoa and Aluminum Futures
Can any of the company-specific risk be diversified away by investing in both Cocoa and Aluminum 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 Cocoa and Aluminum Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cocoa and Aluminum Futures, you can compare the effects of market volatilities on Cocoa and Aluminum 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 Cocoa with a short position of Aluminum Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cocoa and Aluminum Futures.
Diversification Opportunities for Cocoa and Aluminum Futures
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Cocoa and Aluminum is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Cocoa and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures and Cocoa 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 Cocoa are associated (or correlated) with Aluminum Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminum Futures has no effect on the direction of Cocoa i.e., Cocoa and Aluminum Futures go up and down completely randomly.
Pair Corralation between Cocoa and Aluminum Futures
Assuming the 90 days horizon Cocoa is expected to generate 2.66 times more return on investment than Aluminum Futures. However, Cocoa is 2.66 times more volatile than Aluminum Futures. It trades about 0.1 of its potential returns per unit of risk. Aluminum Futures is currently generating about 0.02 per unit of risk. If you would invest 262,100 in Cocoa on November 2, 2024 and sell it today you would earn a total of 837,000 from holding Cocoa or generate 319.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.02% |
| Values | Daily Returns |
Cocoa vs. Aluminum Futures
Performance |
| Timeline |
| Cocoa |
| Aluminum Futures |
Cocoa and Aluminum Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cocoa and Aluminum Futures
The main advantage of trading using opposite Cocoa and Aluminum Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cocoa position performs unexpectedly, Aluminum 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 Aluminum Futures will offset losses from the drop in Aluminum Futures' long position.| Cocoa vs. Oat Futures | Cocoa vs. Wheat Futures | Cocoa vs. Feeder Cattle Futures | Cocoa vs. Micro Silver Futures |
| Aluminum Futures vs. Crude Oil | Aluminum Futures vs. E Mini SP 500 | Aluminum Futures vs. US Dollar | Aluminum Futures 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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