Correlation Between Cotton and Gold Futures
Can any of the company-specific risk be diversified away by investing in both Cotton and Gold 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 Cotton and Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cotton and Gold Futures, you can compare the effects of market volatilities on Cotton and Gold 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 Cotton with a short position of Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cotton and Gold Futures.
Diversification Opportunities for Cotton and Gold Futures
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Cotton and Gold is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Cotton and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and Cotton 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 Cotton are associated (or correlated) with Gold Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Futures has no effect on the direction of Cotton i.e., Cotton and Gold Futures go up and down completely randomly.
Pair Corralation between Cotton and Gold Futures
Assuming the 90 days horizon Cotton is expected to under-perform the Gold Futures. In addition to that, Cotton is 1.68 times more volatile than Gold Futures. It trades about -0.02 of its total potential returns per unit of risk. Gold Futures is currently generating about 0.09 per unit of volatility. If you would invest 182,600 in Gold Futures on September 19, 2024 and sell it today you would earn a total of 83,520 from holding Gold Futures or generate 45.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.04% |
| Values | Daily Returns |
Cotton vs. Gold Futures
Performance |
| Timeline |
| Cotton |
| Gold Futures |
Cotton and Gold Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cotton and Gold Futures
The main advantage of trading using opposite Cotton and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cotton position performs unexpectedly, Gold 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 Gold Futures will offset losses from the drop in Gold Futures' long position.| Cotton vs. 30 Year Treasury | Cotton vs. 2 Year T Note Futures | Cotton vs. Heating Oil | Cotton vs. Crude Oil |
| Gold Futures vs. Cotton | Gold Futures vs. Cocoa | Gold Futures vs. Micro Gold Futures | Gold 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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