Correlation Between Cotton and Soybean Futures
Can any of the company-specific risk be diversified away by investing in both Cotton and Soybean 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 Soybean Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cotton and Soybean Futures, you can compare the effects of market volatilities on Cotton and Soybean 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 Soybean Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cotton and Soybean Futures.
Diversification Opportunities for Cotton and Soybean Futures
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cotton and Soybean is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cotton and Soybean Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soybean 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 Soybean Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soybean Futures has no effect on the direction of Cotton i.e., Cotton and Soybean Futures go up and down completely randomly.
Pair Corralation between Cotton and Soybean Futures
Assuming the 90 days horizon Cotton is expected to generate 0.93 times more return on investment than Soybean Futures. However, Cotton is 1.07 times less risky than Soybean Futures. It trades about 0.01 of its potential returns per unit of risk. Soybean Futures is currently generating about -0.07 per unit of risk. If you would invest 6,766 in Cotton on November 22, 2024 and sell it today you would earn a total of 0.00 from holding Cotton or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cotton vs. Soybean Futures
Performance |
| Timeline |
| Cotton |
| Soybean Futures |
Cotton and Soybean Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cotton and Soybean Futures
The main advantage of trading using opposite Cotton and Soybean Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cotton position performs unexpectedly, Soybean 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 Soybean Futures will offset losses from the drop in Soybean Futures' long position.| Cotton vs. Micro E mini Russell | Cotton vs. 10 Year T Note Futures | Cotton vs. Oat Futures | Cotton vs. Corn Futures |
| Soybean Futures vs. Palladium | Soybean Futures vs. Lean Hogs Futures | Soybean Futures vs. 30 Year Treasury | Soybean Futures vs. Micro E mini Russell |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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