Correlation Between Cocoa and Micro Silver

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

By analyzing existing cross correlation between Cocoa and Micro Silver Futures, you can compare the effects of market volatilities on Cocoa and Micro Silver 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 Micro Silver. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cocoa and Micro Silver.

Diversification Opportunities for Cocoa and Micro Silver

-0.77

Correlation Coefficient

Cocoa  Micro Silver

Pay attention - limited upside

The 3 months correlation between Cocoa and Micro is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Cocoa and Micro Silver Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro Silver 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 Micro Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Silver Futures has no effect on the direction of Cocoa i.e., Cocoa and Micro Silver go up and down completely randomly.

Pair Corralation between Cocoa and Micro Silver

Assuming the 90 days horizon Cocoa is expected to under-perform the Micro Silver. In addition to that, Cocoa is 2.24 times more volatile than Micro Silver Futures. It trades about -0.15 of its total potential returns per unit of risk. Micro Silver Futures is currently generating about 0.19 per unit of volatility. If you would invest  2,941  in Micro Silver Futures on December 29, 2024 and sell it today you would earn a total of  541.00  from holding Micro Silver Futures or generate 18.4% return on investment over 90 days.

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

Cocoa  vs.  Micro Silver Futures

Cocoa

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cocoa has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Commodity's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Cocoa shareholders.

Micro Silver Futures

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Silver Futures are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Micro Silver exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cocoa and Micro Silver

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

The idea behind Cocoa and Micro Silver 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 CEOs Directory module to screen CEOs from public companies around the world.