Correlation Between Soybean Meal and Coffee
Can any of the company-specific risk be diversified away by investing in both Soybean Meal 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 Soybean Meal and Coffee into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Soybean Meal Futures and Coffee, you can compare the effects of market volatilities on Soybean Meal 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 Soybean Meal with a short position of Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Soybean Meal and Coffee.
Diversification Opportunities for Soybean Meal and Coffee
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Soybean and Coffee is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Soybean Meal Futures and Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee and Soybean Meal 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 Soybean Meal 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 Soybean Meal i.e., Soybean Meal and Coffee go up and down completely randomly.
Pair Corralation between Soybean Meal and Coffee
Assuming the 90 days horizon Soybean Meal Futures is expected to under-perform the Coffee. But the commodity apears to be less risky and, when comparing its historical volatility, Soybean Meal Futures is 1.65 times less risky than Coffee. The commodity trades about -0.19 of its potential returns per unit of risk. The Coffee is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 26,780 in Coffee on August 25, 2024 and sell it today you would earn a total of 3,510 from holding Coffee or generate 13.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Soybean Meal Futures vs. Coffee
Performance |
| Timeline |
| Soybean Meal Futures |
| Coffee |
Soybean Meal and Coffee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Soybean Meal and Coffee
The main advantage of trading using opposite Soybean Meal and Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Soybean Meal 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.| Soybean Meal vs. Micro Gold Futures | Soybean Meal vs. Crude Oil | Soybean Meal vs. Live Cattle Futures | Soybean Meal vs. 2 Year T Note Futures |
| Coffee vs. Heating Oil | Coffee vs. Aluminum Futures | Coffee vs. Lumber Futures | Coffee vs. 30 Year Treasury |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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