Correlation Between Corn Futures and Cocoa
Can any of the company-specific risk be diversified away by investing in both Corn Futures 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 Corn Futures and Cocoa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Corn Futures and Cocoa, you can compare the effects of market volatilities on Corn Futures 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 Corn Futures with a short position of Cocoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Corn Futures and Cocoa.
Diversification Opportunities for Corn Futures and Cocoa
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Corn and Cocoa is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Corn Futures and Cocoa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cocoa and Corn Futures 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 Corn Futures 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 Corn Futures i.e., Corn Futures and Cocoa go up and down completely randomly.
Pair Corralation between Corn Futures and Cocoa
Assuming the 90 days horizon Corn Futures is expected to under-perform the Cocoa. But the commodity apears to be less risky and, when comparing its historical volatility, Corn Futures is 2.97 times less risky than Cocoa. The commodity trades about -0.02 of its potential returns per unit of risk. The Cocoa is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 391,400 in Cocoa on September 1, 2024 and sell it today you would earn a total of 547,800 from holding Cocoa or generate 139.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.27% |
| Values | Daily Returns |
Corn Futures vs. Cocoa
Performance |
| Timeline |
| Corn Futures |
| Cocoa |
Corn Futures and Cocoa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Corn Futures and Cocoa
The main advantage of trading using opposite Corn Futures and Cocoa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Corn Futures 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.| Corn Futures vs. Palladium | Corn Futures vs. Cocoa | Corn Futures vs. Lean Hogs Futures | Corn Futures vs. Natural Gas |
| Cocoa vs. Oat Futures | Cocoa vs. Wheat Futures | Cocoa vs. Feeder Cattle Futures | Cocoa vs. Micro Silver 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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