Correlation Between Coffee and Mini Dow
Can any of the company-specific risk be diversified away by investing in both Coffee and Mini Dow 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 Mini Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coffee and Mini Dow Jones, you can compare the effects of market volatilities on Coffee and Mini Dow 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 Mini Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee and Mini Dow.
Diversification Opportunities for Coffee and Mini Dow
Poor diversification
The 3 months correlation between Coffee and Mini is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Coffee and Mini Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mini Dow Jones 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 Mini Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mini Dow Jones has no effect on the direction of Coffee i.e., Coffee and Mini Dow go up and down completely randomly.
Pair Corralation between Coffee and Mini Dow
Assuming the 90 days horizon Coffee is expected to generate 3.07 times more return on investment than Mini Dow. However, Coffee is 3.07 times more volatile than Mini Dow Jones. It trades about 0.11 of its potential returns per unit of risk. Mini Dow Jones is currently generating about 0.1 per unit of risk. If you would invest 18,830 in Coffee on August 25, 2024 and sell it today you would earn a total of 11,460 from holding Coffee or generate 60.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.45% |
| Values | Daily Returns |
Coffee vs. Mini Dow Jones
Performance |
| Timeline |
| Coffee |
| Mini Dow Jones |
Coffee and Mini Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coffee and Mini Dow
The main advantage of trading using opposite Coffee and Mini Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee position performs unexpectedly, Mini Dow 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 Mini Dow will offset losses from the drop in Mini Dow'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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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