Correlation Between Cocoa and 30 Day

Can any of the company-specific risk be diversified away by investing in both Cocoa and 30 Day 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 Cocoa and 30 Day into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cocoa and 30 Day Fed, you can compare the effects of market volatilities on Cocoa and 30 Day 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 Cocoa with a short position of 30 Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cocoa and 30 Day.

Diversification Opportunities for Cocoa and 30 Day

0.56

Correlation Coefficient

Cocoa  30 Day

Very weak diversification

The 3 months correlation between Cocoa and ZQUSD is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Cocoa and 30 Day Fed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 30 Day Fed and Cocoa 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 Cocoa are associated (or correlated) with 30 Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 30 Day Fed has no effect on the direction of Cocoa i.e., Cocoa and 30 Day go up and down completely randomly.

Pair Corralation between Cocoa and 30 Day

Assuming the 90 days horizon Cocoa is expected to generate 48.32 times more return on investment than 30 Day. However, Cocoa is 48.32 times more volatile than 30 Day Fed. It trades about 0.46 of its potential returns per unit of risk. 30 Day Fed is currently generating about 0.12 per unit of risk. If you would invest  850,600  in Cocoa on September 15, 2024 and sell it today you would earn a total of  279,400  from holding Cocoa or generate 32.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Cocoa  vs.  30 Day Fed

Cocoa

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cocoa are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Cocoa exhibited solid returns over the last few months and may actually be approaching a breakup point.

30 Day Fed

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in 30 Day Fed are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, 30 Day is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cocoa and 30 Day

The main advantage of trading using opposite Cocoa and 30 Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cocoa position performs unexpectedly, 30 Day 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 30 Day will offset losses from the drop in 30 Day's long position.

The idea behind Cocoa and 30 Day Fed pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.