Correlation Between Cocoa and Gold Futures

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Can any of the company-specific risk be diversified away by investing in both Cocoa and Gold Futures 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 Gold Futures into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cocoa and Gold Futures, you can compare the effects of market volatilities on Cocoa and Gold Futures 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 Gold Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cocoa and Gold Futures.

Diversification Opportunities for Cocoa and Gold Futures

CocoaGoldDiversified AwayCocoaGoldDiversified Away100%
0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Cocoa and Gold is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Cocoa and Gold Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Futures 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 Gold Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Futures has no effect on the direction of Cocoa i.e., Cocoa and Gold Futures go up and down completely randomly.

Pair Corralation between Cocoa and Gold Futures

If you would invest  776,700  in Cocoa on September 15, 2024 and sell it today you would earn a total of  353,300  from holding Cocoa or generate 45.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

Cocoa  vs.  Gold Futures

 Performance 
JavaScript chart by amCharts 3.21.15OctNov -1001020
JavaScript chart by amCharts 3.21.15CCUSD GCUSD
       Timeline  
Cocoa 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec7,0008,0009,00010,00011,000
Gold Futures 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Weak
Over the last 90 days Gold Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Gold Futures is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Cocoa and Gold Futures Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.5-7.12-4.73-2.350.03982.595.237.8710.51 0.010.020.030.04
JavaScript chart by amCharts 3.21.15CCUSD GCUSD
       Returns  

Pair Trading with Cocoa and Gold Futures

The main advantage of trading using opposite Cocoa and Gold Futures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cocoa position performs unexpectedly, Gold Futures 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 Gold Futures will offset losses from the drop in Gold Futures' long position.
The idea behind Cocoa and Gold Futures 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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