Correlation Between Cocoa and Corn Futures
Can any of the company-specific risk be diversified away by investing in both Cocoa and Corn 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 Corn Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cocoa and Corn Futures, you can compare the effects of market volatilities on Cocoa and Corn 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 Corn Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cocoa and Corn Futures.
Diversification Opportunities for Cocoa and Corn Futures
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Cocoa and Corn is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Cocoa and Corn Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corn 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 Corn Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corn Futures has no effect on the direction of Cocoa i.e., Cocoa and Corn Futures go up and down completely randomly.
Pair Corralation between Cocoa and Corn Futures
Assuming the 90 days horizon Cocoa is expected to under-perform the Corn Futures. In addition to that, Cocoa is 2.73 times more volatile than Corn Futures. It trades about -0.36 of its total potential returns per unit of risk. Corn Futures is currently generating about 0.01 per unit of volatility. If you would invest 48,200 in Corn Futures on November 27, 2024 and sell it today you would earn a total of 50.00 from holding Corn Futures or generate 0.1% 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. Corn Futures
Performance |
| Timeline |
| Cocoa |
| Corn Futures |
Cocoa and Corn Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cocoa and Corn Futures
The main advantage of trading using opposite Cocoa and Corn Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cocoa position performs unexpectedly, Corn 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 Corn Futures will offset losses from the drop in Corn Futures' long position.The idea behind Cocoa and Corn Futures 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.| Corn Futures vs. Micro E mini Russell | Corn Futures vs. Cocoa | Corn Futures vs. Cotton | Corn Futures vs. Natural Gas |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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