Correlation Between Coffee and 2 Year
Can any of the company-specific risk be diversified away by investing in both Coffee and 2 Year 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 2 Year into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coffee and 2 Year T Note Futures, you can compare the effects of market volatilities on Coffee and 2 Year 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 2 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee and 2 Year.
Diversification Opportunities for Coffee and 2 Year
Very good diversification
The 3 months correlation between Coffee and ZTUSD is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Coffee and 2 Year T Note Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2 Year T 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 2 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2 Year T has no effect on the direction of Coffee i.e., Coffee and 2 Year go up and down completely randomly.
Pair Corralation between Coffee and 2 Year
Assuming the 90 days horizon Coffee is expected to generate 14.32 times more return on investment than 2 Year. However, Coffee is 14.32 times more volatile than 2 Year T Note Futures. It trades about 0.07 of its potential returns per unit of risk. 2 Year T Note Futures is currently generating about 0.0 per unit of risk. If you would invest 16,790 in Coffee on September 3, 2024 and sell it today you would earn a total of 15,015 from holding Coffee or generate 89.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.64% |
| Values | Daily Returns |
Coffee vs. 2 Year T Note Futures
Performance |
| Timeline |
| Coffee |
| 2 Year T |
Coffee and 2 Year Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coffee and 2 Year
The main advantage of trading using opposite Coffee and 2 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee position performs unexpectedly, 2 Year 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 2 Year will offset losses from the drop in 2 Year's long position.The idea behind Coffee and 2 Year T Note Futures pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 2 Year vs. 10 Year T Note Futures | 2 Year vs. Nasdaq 100 | 2 Year vs. Oat Futures | 2 Year vs. Wheat 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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