Correlation Between Platinum and Cotton
Can any of the company-specific risk be diversified away by investing in both Platinum and Cotton 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 Platinum and Cotton into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Platinum and Cotton, you can compare the effects of market volatilities on Platinum and Cotton 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 Platinum with a short position of Cotton. Check out your portfolio center. Please also check ongoing floating volatility patterns of Platinum and Cotton.
Diversification Opportunities for Platinum and Cotton
Weak diversification
The 3 months correlation between Platinum and Cotton is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Platinum and Cotton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cotton and Platinum 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 Platinum are associated (or correlated) with Cotton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cotton has no effect on the direction of Platinum i.e., Platinum and Cotton go up and down completely randomly.
Pair Corralation between Platinum and Cotton
Assuming the 90 days horizon Platinum is expected to under-perform the Cotton. In addition to that, Platinum is 1.12 times more volatile than Cotton. It trades about -0.13 of its total potential returns per unit of risk. Cotton is currently generating about 0.12 per unit of volatility. If you would invest 6,957 in Cotton on September 1, 2024 and sell it today you would earn a total of 238.00 from holding Cotton or generate 3.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Platinum vs. Cotton
Performance |
| Timeline |
| Platinum |
| Cotton |
Platinum and Cotton Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Platinum and Cotton
The main advantage of trading using opposite Platinum and Cotton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Platinum position performs unexpectedly, Cotton 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 Cotton will offset losses from the drop in Cotton's long position.| Platinum vs. Feeder Cattle Futures | Platinum vs. Micro Silver Futures | Platinum vs. 30 Day Fed | Platinum vs. Mini Dow Jones |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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