Correlation Between Rough Rice and Cotton
Can any of the company-specific risk be diversified away by investing in both Rough Rice 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 Rough Rice and Cotton into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rough Rice Futures and Cotton, you can compare the effects of market volatilities on Rough Rice 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 Rough Rice with a short position of Cotton. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rough Rice and Cotton.
Diversification Opportunities for Rough Rice and Cotton
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Rough and Cotton is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Rough Rice Futures and Cotton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cotton and Rough Rice 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 Rough Rice Futures 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 Rough Rice i.e., Rough Rice and Cotton go up and down completely randomly.
Pair Corralation between Rough Rice and Cotton
Assuming the 90 days horizon Rough Rice Futures is expected to generate 1.3 times more return on investment than Cotton. However, Rough Rice is 1.3 times more volatile than Cotton. It trades about -0.08 of its potential returns per unit of risk. Cotton is currently generating about -0.2 per unit of risk. If you would invest 1,416 in Rough Rice Futures on November 3, 2024 and sell it today you would lose (31.00) from holding Rough Rice Futures or give up 2.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rough Rice Futures vs. Cotton
Performance |
| Timeline |
| Rough Rice Futures |
| Cotton |
Rough Rice and Cotton Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rough Rice and Cotton
The main advantage of trading using opposite Rough Rice and Cotton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rough Rice 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.| Rough Rice vs. Nasdaq 100 | Rough Rice vs. Oat Futures | Rough Rice vs. Wheat Futures | Rough Rice vs. Feeder Cattle 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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