Correlation Between Cocoa and Platinum
Can any of the company-specific risk be diversified away by investing in both Cocoa and Platinum 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 Platinum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cocoa and Platinum, you can compare the effects of market volatilities on Cocoa and Platinum 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 Platinum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cocoa and Platinum.
Diversification Opportunities for Cocoa and Platinum
Significant diversification
The 3 months correlation between Cocoa and Platinum is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Cocoa and Platinum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Platinum 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 Platinum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Platinum has no effect on the direction of Cocoa i.e., Cocoa and Platinum go up and down completely randomly.
Pair Corralation between Cocoa and Platinum
Assuming the 90 days horizon Cocoa is expected to generate 2.09 times more return on investment than Platinum. However, Cocoa is 2.09 times more volatile than Platinum. It trades about 0.09 of its potential returns per unit of risk. Platinum is currently generating about 0.02 per unit of risk. If you would invest 273,200 in Cocoa on November 9, 2024 and sell it today you would earn a total of 724,300 from holding Cocoa or generate 265.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.02% |
| Values | Daily Returns |
Cocoa vs. Platinum
Performance |
| Timeline |
| Cocoa |
| Platinum |
Cocoa and Platinum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cocoa and Platinum
The main advantage of trading using opposite Cocoa and Platinum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cocoa position performs unexpectedly, Platinum 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 Platinum will offset losses from the drop in Platinum's long position.| Cocoa vs. Crude Oil | Cocoa vs. Silver Futures | Cocoa vs. Micro Gold Futures | Cocoa vs. Five Year Treasury Note |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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