Correlation Between Coffee and Sugar
Can any of the company-specific risk be diversified away by investing in both Coffee and Sugar 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 Sugar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coffee and Sugar, you can compare the effects of market volatilities on Coffee and Sugar 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 Sugar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee and Sugar.
Diversification Opportunities for Coffee and Sugar
Modest diversification
The 3 months correlation between Coffee and Sugar is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Coffee and Sugar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sugar 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 Sugar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sugar has no effect on the direction of Coffee i.e., Coffee and Sugar go up and down completely randomly.
Pair Corralation between Coffee and Sugar
Assuming the 90 days horizon Coffee is expected to generate 1.18 times more return on investment than Sugar. However, Coffee is 1.18 times more volatile than Sugar. It trades about 0.07 of its potential returns per unit of risk. Sugar is currently generating about 0.02 per unit of risk. If you would invest 16,260 in Coffee on August 25, 2024 and sell it today you would earn a total of 14,030 from holding Coffee or generate 86.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Coffee vs. Sugar
Performance |
| Timeline |
| Coffee |
| Sugar |
Coffee and Sugar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coffee and Sugar
The main advantage of trading using opposite Coffee and Sugar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee position performs unexpectedly, Sugar 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 Sugar will offset losses from the drop in Sugar's long position.| Coffee vs. Heating Oil | Coffee vs. Aluminum Futures | Coffee vs. Lumber Futures | Coffee vs. 30 Year Treasury |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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