Correlation Between Cotton and 30 Day
Can any of the company-specific risk be diversified away by investing in both Cotton and 30 Day 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 30 Day into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cotton and 30 Day Fed, you can compare the effects of market volatilities on Cotton and 30 Day 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 30 Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cotton and 30 Day.
Diversification Opportunities for Cotton and 30 Day
Modest diversification
The 3 months correlation between Cotton and ZQUSD is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Cotton and 30 Day Fed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 30 Day Fed 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 30 Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 30 Day Fed has no effect on the direction of Cotton i.e., Cotton and 30 Day go up and down completely randomly.
Pair Corralation between Cotton and 30 Day
Assuming the 90 days horizon Cotton is expected to under-perform the 30 Day. In addition to that, Cotton is 25.04 times more volatile than 30 Day Fed. It trades about -0.03 of its total potential returns per unit of risk. 30 Day Fed is currently generating about 0.06 per unit of volatility. If you would invest 9,467 in 30 Day Fed on August 25, 2024 and sell it today you would earn a total of 80.00 from holding 30 Day Fed or generate 0.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.3% |
| Values | Daily Returns |
Cotton vs. 30 Day Fed
Performance |
| Timeline |
| Cotton |
| 30 Day Fed |
Cotton and 30 Day Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cotton and 30 Day
The main advantage of trading using opposite Cotton and 30 Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cotton position performs unexpectedly, 30 Day 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 30 Day will offset losses from the drop in 30 Day's long position.The idea behind Cotton and 30 Day Fed 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.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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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