Correlation Between Oat Futures and Cocoa
Can any of the company-specific risk be diversified away by investing in both Oat 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 Oat Futures and Cocoa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oat Futures and Cocoa, you can compare the effects of market volatilities on Oat 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 Oat Futures with a short position of Cocoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oat Futures and Cocoa.
Diversification Opportunities for Oat Futures and Cocoa
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Oat and Cocoa is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Oat Futures and Cocoa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cocoa and Oat 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 Oat 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 Oat Futures i.e., Oat Futures and Cocoa go up and down completely randomly.
Pair Corralation between Oat Futures and Cocoa
Assuming the 90 days horizon Oat Futures is expected to generate 2.67 times less return on investment than Cocoa. But when comparing it to its historical volatility, Oat Futures is 2.3 times less risky than Cocoa. It trades about 0.02 of its potential returns per unit of risk. Cocoa is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 989,500 in Cocoa on September 3, 2024 and sell it today you would lose (47,000) from holding Cocoa or give up 4.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 98.82% |
| Values | Daily Returns |
Oat Futures vs. Cocoa
Performance |
| Timeline |
| Oat Futures |
| Cocoa |
Oat Futures and Cocoa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oat Futures and Cocoa
The main advantage of trading using opposite Oat Futures and Cocoa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oat 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.| Oat Futures vs. Heating Oil | Oat Futures vs. Crude Oil | Oat Futures vs. Aluminum Futures | Oat Futures vs. Corn 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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