Correlation Between Coffee and Micro Gold
Can any of the company-specific risk be diversified away by investing in both Coffee and Micro Gold 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 Micro Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coffee and Micro Gold Futures, you can compare the effects of market volatilities on Coffee and Micro Gold 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 Micro Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee and Micro Gold.
Diversification Opportunities for Coffee and Micro Gold
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Coffee and Micro is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Coffee and Micro Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro 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 Micro Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Gold Futures has no effect on the direction of Coffee i.e., Coffee and Micro Gold go up and down completely randomly.
Pair Corralation between Coffee and Micro Gold
Assuming the 90 days horizon Coffee is expected to generate 2.34 times more return on investment than Micro Gold. However, Coffee is 2.34 times more volatile than Micro Gold Futures. It trades about 0.11 of its potential returns per unit of risk. Micro Gold Futures is currently generating about 0.11 per unit of risk. If you would invest 17,370 in Coffee on September 1, 2024 and sell it today you would earn a total of 14,665 from holding Coffee or generate 84.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.19% |
| Values | Daily Returns |
Coffee vs. Micro Gold Futures
Performance |
| Timeline |
| Coffee |
| Micro Gold Futures |
Coffee and Micro Gold Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coffee and Micro Gold
The main advantage of trading using opposite Coffee and Micro Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee position performs unexpectedly, Micro Gold 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 Micro Gold will offset losses from the drop in Micro Gold's long position.| Coffee vs. Five Year Treasury Note | Coffee vs. Live Cattle Futures | Coffee vs. Lean Hogs Futures | Coffee vs. Brent Crude Oil |
| Micro Gold vs. Oat Futures | Micro Gold vs. Wheat Futures | Micro Gold vs. Feeder Cattle Futures | Micro Gold vs. Micro Silver 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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