Correlation Between Live Cattle and Coffee
Can any of the company-specific risk be diversified away by investing in both Live Cattle and Coffee 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 Live Cattle and Coffee into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Live Cattle Futures and Coffee, you can compare the effects of market volatilities on Live Cattle and Coffee 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 Live Cattle with a short position of Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Cattle and Coffee.
Diversification Opportunities for Live Cattle and Coffee
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Live and Coffee is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Live Cattle Futures and Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee and Live Cattle 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 Live Cattle Futures are associated (or correlated) with Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee has no effect on the direction of Live Cattle i.e., Live Cattle and Coffee go up and down completely randomly.
Pair Corralation between Live Cattle and Coffee
Assuming the 90 days horizon Live Cattle is expected to generate 3.49 times less return on investment than Coffee. But when comparing it to its historical volatility, Live Cattle Futures is 2.3 times less risky than Coffee. It trades about 0.05 of its potential returns per unit of risk. Coffee is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 16,705 in Coffee on September 1, 2024 and sell it today you would earn a total of 15,330 from holding Coffee or generate 91.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.81% |
| Values | Daily Returns |
Live Cattle Futures vs. Coffee
Performance |
| Timeline |
| Live Cattle Futures |
| Coffee |
Live Cattle and Coffee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Live Cattle and Coffee
The main advantage of trading using opposite Live Cattle and Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Live Cattle position performs unexpectedly, Coffee 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 Coffee will offset losses from the drop in Coffee's long position.| Live Cattle vs. Cocoa | Live Cattle vs. E Mini SP 500 | Live Cattle vs. Cotton | Live Cattle vs. Class III Milk |
| Coffee vs. Five Year Treasury Note | Coffee vs. Live Cattle Futures | Coffee vs. Lean Hogs Futures | Coffee vs. Brent Crude Oil |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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