Correlation Between Crude Oil and Cotton
Can any of the company-specific risk be diversified away by investing in both Crude Oil and Cotton 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 Crude Oil and Cotton into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Crude Oil and Cotton, you can compare the effects of market volatilities on Crude Oil and Cotton 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 Crude Oil with a short position of Cotton. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crude Oil and Cotton.
Diversification Opportunities for Crude Oil and Cotton
Weak diversification
The 3 months correlation between Crude and Cotton is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Crude Oil and Cotton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cotton and Crude Oil 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 Crude Oil are associated (or correlated) with Cotton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cotton has no effect on the direction of Crude Oil i.e., Crude Oil and Cotton go up and down completely randomly.
Pair Corralation between Crude Oil and Cotton
Assuming the 90 days horizon Crude Oil is expected to generate 1.59 times more return on investment than Cotton. However, Crude Oil is 1.59 times more volatile than Cotton. It trades about 0.05 of its potential returns per unit of risk. Cotton is currently generating about 0.08 per unit of risk. If you would invest 6,738 in Crude Oil on August 29, 2024 and sell it today you would earn a total of 126.00 from holding Crude Oil or generate 1.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Crude Oil vs. Cotton
Performance |
| Timeline |
| Crude Oil |
| Cotton |
Crude Oil and Cotton Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Crude Oil and Cotton
The main advantage of trading using opposite Crude Oil and Cotton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crude Oil position performs unexpectedly, Cotton 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 Cotton will offset losses from the drop in Cotton's long position.| Crude Oil vs. Palladium | Crude Oil vs. Brent Crude Oil | Crude Oil vs. Natural Gas | Crude Oil vs. Live Cattle Futures |
| Cotton vs. 10 Year T Note Futures | Cotton vs. Nasdaq 100 | Cotton vs. Oat Futures | Cotton vs. Wheat 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.
Other Complementary Tools
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| Bonds Directory Find actively traded corporate debentures issued by US companies |