Correlation Between US Dollar and Cocoa
Can any of the company-specific risk be diversified away by investing in both US Dollar and Cocoa 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 US Dollar and Cocoa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Dollar and Cocoa, you can compare the effects of market volatilities on US Dollar and Cocoa 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 US Dollar with a short position of Cocoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Dollar and Cocoa.
Diversification Opportunities for US Dollar and Cocoa
Weak diversification
The 3 months correlation between DXUSD and Cocoa is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding US Dollar and Cocoa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cocoa and US Dollar 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 US Dollar are associated (or correlated) with Cocoa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cocoa has no effect on the direction of US Dollar i.e., US Dollar and Cocoa go up and down completely randomly.
Pair Corralation between US Dollar and Cocoa
Assuming the 90 days horizon US Dollar is expected to generate 11.26 times less return on investment than Cocoa. But when comparing it to its historical volatility, US Dollar is 5.83 times less risky than Cocoa. It trades about 0.22 of its potential returns per unit of risk. Cocoa is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest 691,700 in Cocoa on August 29, 2024 and sell it today you would earn a total of 226,400 from holding Cocoa or generate 32.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Dollar vs. Cocoa
Performance |
| Timeline |
| US Dollar |
| Cocoa |
US Dollar and Cocoa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Dollar and Cocoa
The main advantage of trading using opposite US Dollar and Cocoa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Dollar position performs unexpectedly, Cocoa 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 Cocoa will offset losses from the drop in Cocoa's long position.| US Dollar vs. Cotton | US Dollar vs. Live Cattle Futures | US Dollar vs. Crude Oil | US Dollar vs. Lean Hogs Futures |
| Cocoa vs. Five Year Treasury Note | Cocoa vs. Micro Gold Futures | Cocoa vs. Class III Milk | Cocoa vs. Palladium |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
Other Complementary Tools
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| Positions Ratings 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 | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world |