Correlation Between Coffee and Gold Futures
Can any of the company-specific risk be diversified away by investing in both Coffee and Gold 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 Coffee and Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coffee and Gold Futures, you can compare the effects of market volatilities on Coffee and Gold 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 Coffee with a short position of Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee and Gold Futures.
Diversification Opportunities for Coffee and Gold Futures
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Coffee and Gold is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Coffee and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures and Coffee 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 Coffee are associated (or correlated) with Gold Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Futures has no effect on the direction of Coffee i.e., Coffee and Gold Futures go up and down completely randomly.
Pair Corralation between Coffee and Gold Futures
Assuming the 90 days horizon Coffee is expected to generate 2.16 times more return on investment than Gold Futures. However, Coffee is 2.16 times more volatile than Gold Futures. It trades about 0.14 of its potential returns per unit of risk. Gold Futures is currently generating about 0.03 per unit of risk. If you would invest 26,780 in Coffee on August 25, 2024 and sell it today you would earn a total of 3,510 from holding Coffee or generate 13.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Coffee vs. Gold Futures
Performance |
| Timeline |
| Coffee |
| Gold Futures |
Coffee and Gold Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coffee and Gold Futures
The main advantage of trading using opposite Coffee and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee position performs unexpectedly, Gold 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 Gold Futures will offset losses from the drop in Gold Futures' long position.| Coffee vs. Heating Oil | Coffee vs. Aluminum Futures | Coffee vs. Lumber Futures | Coffee vs. 30 Year Treasury |
| Gold Futures vs. Aluminum Futures | Gold Futures vs. Lean Hogs Futures | Gold Futures vs. Crude Oil | Gold Futures vs. Corn Futures |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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