Correlation Between Cocoa and US Dollar
Can any of the company-specific risk be diversified away by investing in both Cocoa and US Dollar 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 US Dollar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cocoa and US Dollar, you can compare the effects of market volatilities on Cocoa and US Dollar 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 US Dollar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cocoa and US Dollar.
Diversification Opportunities for Cocoa and US Dollar
Weak diversification
The 3 months correlation between Cocoa and DXUSD is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Cocoa and US Dollar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Dollar 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 US Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Dollar has no effect on the direction of Cocoa i.e., Cocoa and US Dollar go up and down completely randomly.
Pair Corralation between Cocoa and US Dollar
Assuming the 90 days horizon Cocoa is expected to generate 5.83 times more return on investment than US Dollar. However, Cocoa is 5.83 times more volatile than US Dollar. It trades about 0.43 of its potential returns per unit of risk. US Dollar is currently generating about 0.22 per unit of risk. If you would invest 691,700 in Cocoa on August 29, 2024 and sell it today you would earn a total of 226,400 from holding Cocoa or generate 32.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cocoa vs. US Dollar
Performance |
| Timeline |
| Cocoa |
| US Dollar |
Cocoa and US Dollar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cocoa and US Dollar
The main advantage of trading using opposite Cocoa and US Dollar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cocoa position performs unexpectedly, US Dollar 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 US Dollar will offset losses from the drop in US Dollar's long position.| Cocoa vs. Five Year Treasury Note | Cocoa vs. Micro Gold Futures | Cocoa vs. Class III Milk | Cocoa vs. Palladium |
| US Dollar vs. Cotton | US Dollar vs. Live Cattle Futures | US Dollar vs. Crude Oil | US Dollar vs. Lean Hogs Futures |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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