Correlation Between Coffee and Wheat Futures
Can any of the company-specific risk be diversified away by investing in both Coffee and Wheat 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 Wheat Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coffee and Wheat Futures, you can compare the effects of market volatilities on Coffee and Wheat 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 Wheat Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee and Wheat Futures.
Diversification Opportunities for Coffee and Wheat Futures
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Coffee and Wheat is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Coffee and Wheat Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wheat 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 Wheat Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wheat Futures has no effect on the direction of Coffee i.e., Coffee and Wheat Futures go up and down completely randomly.
Pair Corralation between Coffee and Wheat Futures
Assuming the 90 days horizon Coffee is expected to generate 1.38 times more return on investment than Wheat Futures. However, Coffee is 1.38 times more volatile than Wheat Futures. It trades about 0.14 of its potential returns per unit of risk. Wheat Futures is currently generating about -0.01 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 Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Coffee vs. Wheat Futures
Performance |
| Timeline |
| Coffee |
| Wheat Futures |
Coffee and Wheat Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coffee and Wheat Futures
The main advantage of trading using opposite Coffee and Wheat Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee position performs unexpectedly, Wheat 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 Wheat Futures will offset losses from the drop in Wheat Futures' long position.| Coffee vs. Heating Oil | Coffee vs. Aluminum Futures | Coffee vs. Lumber Futures | Coffee vs. 30 Year Treasury |
| Wheat Futures vs. Heating Oil | Wheat Futures vs. Crude Oil | Wheat Futures vs. Aluminum Futures | Wheat 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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