Correlation Between Coffee and Oat Futures
Can any of the company-specific risk be diversified away by investing in both Coffee and Oat 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 Oat Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coffee and Oat Futures, you can compare the effects of market volatilities on Coffee and Oat 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 Oat Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee and Oat Futures.
Diversification Opportunities for Coffee and Oat Futures
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Coffee and Oat is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Coffee and Oat Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oat 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 Oat Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oat Futures has no effect on the direction of Coffee i.e., Coffee and Oat Futures go up and down completely randomly.
Pair Corralation between Coffee and Oat Futures
Assuming the 90 days horizon Coffee is expected to generate 0.93 times more return on investment than Oat Futures. However, Coffee is 1.07 times less risky than Oat Futures. It trades about 0.07 of its potential returns per unit of risk. Oat Futures 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 Against |
| Strength | Insignificant |
| Accuracy | 98.61% |
| Values | Daily Returns |
Coffee vs. Oat Futures
Performance |
| Timeline |
| Coffee |
| Oat Futures |
Coffee and Oat Futures Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coffee and Oat Futures
The main advantage of trading using opposite Coffee and Oat Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee position performs unexpectedly, Oat 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 Oat Futures will offset losses from the drop in Oat Futures' long position.| Coffee vs. Heating Oil | Coffee vs. Aluminum Futures | Coffee vs. Lumber Futures | Coffee vs. 30 Year Treasury |
| Oat Futures vs. Class III Milk | Oat Futures vs. Orange Juice | Oat Futures vs. US Dollar | Oat Futures vs. Five Year Treasury Note |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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