Correlation Between Soybean Futures and Cocoa
Can any of the company-specific risk be diversified away by investing in both Soybean 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 Soybean Futures and Cocoa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Soybean Futures and Cocoa, you can compare the effects of market volatilities on Soybean 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 Soybean Futures with a short position of Cocoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Soybean Futures and Cocoa.
Diversification Opportunities for Soybean Futures and Cocoa
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Soybean and Cocoa is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Soybean Futures and Cocoa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cocoa and Soybean 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 Soybean 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 Soybean Futures i.e., Soybean Futures and Cocoa go up and down completely randomly.
Pair Corralation between Soybean Futures and Cocoa
Assuming the 90 days horizon Soybean Futures is expected to generate 0.46 times more return on investment than Cocoa. However, Soybean Futures is 2.17 times less risky than Cocoa. It trades about -0.07 of its potential returns per unit of risk. Cocoa is currently generating about -0.2 per unit of risk. If you would invest 106,725 in Soybean Futures on November 22, 2024 and sell it today you would lose (1,900) from holding Soybean Futures or give up 1.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Soybean Futures vs. Cocoa
Performance |
| Timeline |
| Soybean Futures |
| Cocoa |
Soybean Futures and Cocoa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Soybean Futures and Cocoa
The main advantage of trading using opposite Soybean Futures and Cocoa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Soybean 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.| Soybean Futures vs. Palladium | Soybean Futures vs. Lean Hogs Futures | Soybean Futures vs. 30 Year Treasury | Soybean Futures vs. Micro E mini Russell |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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