Correlation Between Palladium and Cocoa
Can any of the company-specific risk be diversified away by investing in both Palladium and Cocoa 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 Palladium and Cocoa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Palladium and Cocoa, you can compare the effects of market volatilities on Palladium and Cocoa 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 Palladium with a short position of Cocoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palladium and Cocoa.
Diversification Opportunities for Palladium and Cocoa
Very good diversification
The 3 months correlation between Palladium and Cocoa is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Palladium and Cocoa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cocoa and Palladium 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 Palladium are associated (or correlated) with Cocoa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cocoa has no effect on the direction of Palladium i.e., Palladium and Cocoa go up and down completely randomly.
Pair Corralation between Palladium and Cocoa
Assuming the 90 days horizon Palladium is expected to generate 0.64 times more return on investment than Cocoa. However, Palladium is 1.57 times less risky than Cocoa. It trades about 0.04 of its potential returns per unit of risk. Cocoa is currently generating about -0.36 per unit of risk. If you would invest 97,300 in Palladium on November 27, 2024 and sell it today you would earn a total of 1,550 from holding Palladium or generate 1.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Palladium vs. Cocoa
Performance |
| Timeline |
| Palladium |
| Cocoa |
Palladium and Cocoa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Palladium and Cocoa
The main advantage of trading using opposite Palladium and Cocoa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palladium position performs unexpectedly, Cocoa 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 Cocoa will offset losses from the drop in Cocoa's long position.| Palladium vs. Micro E mini Russell | Palladium vs. Lumber Futures | Palladium vs. Micro Gold Futures | Palladium vs. Cotton |
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.
Other Complementary Tools
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon |