Correlation Between Lean Hogs and Coffee
Can any of the company-specific risk be diversified away by investing in both Lean Hogs and Coffee 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 Lean Hogs and Coffee into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lean Hogs Futures and Coffee, you can compare the effects of market volatilities on Lean Hogs and Coffee 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 Lean Hogs with a short position of Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lean Hogs and Coffee.
Diversification Opportunities for Lean Hogs and Coffee
Significant diversification
The 3 months correlation between Lean and Coffee is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Lean Hogs Futures and Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee and Lean Hogs 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 Lean Hogs Futures are associated (or correlated) with Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee has no effect on the direction of Lean Hogs i.e., Lean Hogs and Coffee go up and down completely randomly.
Pair Corralation between Lean Hogs and Coffee
Assuming the 90 days horizon Lean Hogs Futures is expected to under-perform the Coffee. But the commodity apears to be less risky and, when comparing its historical volatility, Lean Hogs Futures is 1.74 times less risky than Coffee. The commodity trades about -0.08 of its potential returns per unit of risk. The Coffee is currently generating about 0.6 of returns per unit of risk over similar time horizon. If you would invest 24,590 in Coffee on September 1, 2024 and sell it today you would earn a total of 7,445 from holding Coffee or generate 30.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Lean Hogs Futures vs. Coffee
Performance |
| Timeline |
| Lean Hogs Futures |
| Coffee |
Lean Hogs and Coffee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lean Hogs and Coffee
The main advantage of trading using opposite Lean Hogs and Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lean Hogs position performs unexpectedly, Coffee 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 Coffee will offset losses from the drop in Coffee's long position.| Lean Hogs vs. Copper | Lean Hogs vs. Gold Futures | Lean Hogs vs. Soybean Meal Futures | Lean Hogs vs. Coffee |
| Coffee vs. Five Year Treasury Note | Coffee vs. Live Cattle Futures | Coffee vs. Lean Hogs Futures | Coffee vs. Brent Crude Oil |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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