Correlation Between Gold Futures and Cocoa
Can any of the company-specific risk be diversified away by investing in both Gold Futures 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 Gold Futures and Cocoa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gold Futures and Cocoa, you can compare the effects of market volatilities on Gold Futures 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 Gold Futures with a short position of Cocoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold Futures and Cocoa.
Diversification Opportunities for Gold Futures and Cocoa
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Gold and Cocoa is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Gold Futures and Cocoa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cocoa and Gold Futures 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 Gold Futures 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 Gold Futures i.e., Gold Futures and Cocoa go up and down completely randomly.
Pair Corralation between Gold Futures and Cocoa
Assuming the 90 days horizon Gold Futures is expected to generate 7.1 times less return on investment than Cocoa. But when comparing it to its historical volatility, Gold Futures is 3.17 times less risky than Cocoa. It trades about 0.05 of its potential returns per unit of risk. Cocoa is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 761,300 in Cocoa on August 29, 2024 and sell it today you would earn a total of 156,800 from holding Cocoa or generate 20.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.46% |
| Values | Daily Returns |
Gold Futures vs. Cocoa
Performance |
| Timeline |
| Gold Futures |
| Cocoa |
Gold Futures and Cocoa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gold Futures and Cocoa
The main advantage of trading using opposite Gold Futures and Cocoa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gold Futures 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.| Gold Futures vs. Rough Rice Futures | Gold Futures vs. Crude Oil | Gold Futures vs. Silver Futures | Gold Futures vs. Brent Crude Oil |
| 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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