Correlation Between Cotton and Micro Silver
Can any of the company-specific risk be diversified away by investing in both Cotton and Micro Silver 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 Micro Silver into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cotton and Micro Silver Futures, you can compare the effects of market volatilities on Cotton and Micro Silver 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 Micro Silver. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cotton and Micro Silver.
Diversification Opportunities for Cotton and Micro Silver
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Cotton and Micro is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Cotton and Micro Silver Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro Silver 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 Micro Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Silver Futures has no effect on the direction of Cotton i.e., Cotton and Micro Silver go up and down completely randomly.
Pair Corralation between Cotton and Micro Silver
Assuming the 90 days horizon Cotton is expected to generate 0.78 times more return on investment than Micro Silver. However, Cotton is 1.28 times less risky than Micro Silver. It trades about 0.12 of its potential returns per unit of risk. Micro Silver Futures is currently generating about -0.14 per unit of risk. If you would invest 6,957 in Cotton on September 1, 2024 and sell it today you would earn a total of 238.00 from holding Cotton or generate 3.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Cotton vs. Micro Silver Futures
Performance |
| Timeline |
| Cotton |
| Micro Silver Futures |
Cotton and Micro Silver Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cotton and Micro Silver
The main advantage of trading using opposite Cotton and Micro Silver positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cotton position performs unexpectedly, Micro Silver 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 Micro Silver will offset losses from the drop in Micro Silver's long position.The idea behind Cotton and Micro Silver 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.| Micro Silver vs. Nasdaq 100 | Micro Silver vs. Oat Futures | Micro Silver vs. Wheat Futures | Micro Silver vs. Feeder Cattle 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
Other Complementary Tools
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Cryptocurrency Center Build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency |