Correlation Between Coffee and Feeder Cattle
Can any of the company-specific risk be diversified away by investing in both Coffee and Feeder Cattle 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 Feeder Cattle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coffee and Feeder Cattle Futures, you can compare the effects of market volatilities on Coffee and Feeder Cattle 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 Feeder Cattle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee and Feeder Cattle.
Diversification Opportunities for Coffee and Feeder Cattle
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Coffee and Feeder is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Coffee and Feeder Cattle Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feeder Cattle 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 Feeder Cattle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feeder Cattle Futures has no effect on the direction of Coffee i.e., Coffee and Feeder Cattle go up and down completely randomly.
Pair Corralation between Coffee and Feeder Cattle
Assuming the 90 days horizon Coffee is expected to generate 2.78 times more return on investment than Feeder Cattle. However, Coffee is 2.78 times more volatile than Feeder Cattle Futures. It trades about 0.48 of its potential returns per unit of risk. Feeder Cattle Futures is currently generating about 0.21 per unit of risk. If you would invest 25,235 in Coffee on August 29, 2024 and sell it today you would earn a total of 5,690 from holding Coffee or generate 22.55% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Coffee vs. Feeder Cattle Futures
Performance |
Timeline |
Coffee |
Feeder Cattle Futures |
Coffee and Feeder Cattle Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Coffee and Feeder Cattle
The main advantage of trading using opposite Coffee and Feeder Cattle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee position performs unexpectedly, Feeder Cattle 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 Feeder Cattle will offset losses from the drop in Feeder Cattle's long position.Coffee vs. Wheat Futures | Coffee vs. Feeder Cattle Futures | Coffee vs. Micro Silver Futures | Coffee vs. 30 Day Fed |
Feeder Cattle vs. Sugar | Feeder Cattle vs. Micro Gold Futures | Feeder Cattle vs. Heating Oil | Feeder Cattle vs. Platinum |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
Other Complementary Tools
Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
Equity Analysis Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities | |
Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities |