Correlation Between Oat Futures and Coffee
Can any of the company-specific risk be diversified away by investing in both Oat Futures 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 Oat Futures and Coffee into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oat Futures and Coffee, you can compare the effects of market volatilities on Oat Futures 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 Oat Futures with a short position of Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oat Futures and Coffee.
Diversification Opportunities for Oat Futures and Coffee
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Oat and Coffee is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Oat Futures and Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee 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 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 Oat Futures i.e., Oat Futures and Coffee go up and down completely randomly.
Pair Corralation between Oat Futures and Coffee
Assuming the 90 days horizon Oat Futures is expected to generate 3.3 times less return on investment than Coffee. In addition to that, Oat Futures is 1.07 times more volatile than Coffee. It trades about 0.02 of its total potential returns per unit of risk. Coffee is currently generating about 0.07 per unit of volatility. If you would invest 16,260 in Coffee on August 25, 2024 and sell it today you would earn a total of 14,030 from holding Coffee or generate 86.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.61% |
| Values | Daily Returns |
Oat Futures vs. Coffee
Performance |
| Timeline |
| Oat Futures |
| Coffee |
Oat Futures and Coffee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oat Futures and Coffee
The main advantage of trading using opposite Oat Futures and Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oat Futures 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.| Oat Futures vs. Class III Milk | Oat Futures vs. Orange Juice | Oat Futures vs. US Dollar | Oat Futures vs. Five Year Treasury Note |
| 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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