Correlation Between Cocoa and E Mini
Can any of the company-specific risk be diversified away by investing in both Cocoa and E Mini 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 E Mini into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cocoa and E Mini SP 500, you can compare the effects of market volatilities on Cocoa and E Mini 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 E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cocoa and E Mini.
Diversification Opportunities for Cocoa and E Mini
Good diversification
The 3 months correlation between Cocoa and ESUSD is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Cocoa and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP 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 E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Cocoa i.e., Cocoa and E Mini go up and down completely randomly.
Pair Corralation between Cocoa and E Mini
Assuming the 90 days horizon Cocoa is expected to under-perform the E Mini. In addition to that, Cocoa is 4.09 times more volatile than E Mini SP 500. It trades about -0.2 of its total potential returns per unit of risk. E Mini SP 500 is currently generating about 0.07 per unit of volatility. If you would invest 608,425 in E Mini SP 500 on November 22, 2024 and sell it today you would earn a total of 6,050 from holding E Mini SP 500 or generate 0.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Cocoa vs. E Mini SP 500
Performance |
| Timeline |
| Cocoa |
| E Mini SP |
Cocoa and E Mini Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cocoa and E Mini
The main advantage of trading using opposite Cocoa and E Mini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cocoa position performs unexpectedly, E Mini 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 E Mini will offset losses from the drop in E Mini's long position.The idea behind Cocoa and E Mini SP 500 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.| E Mini vs. Five Year Treasury Note | E Mini vs. Lean Hogs Futures | E Mini vs. Platinum | E Mini vs. Micro E mini Russell |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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