Correlation Between Coffee Holding and Trane Technologies

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

By analyzing existing cross correlation between Coffee Holding Co and Trane Technologies plc, you can compare the effects of market volatilities on Coffee Holding and Trane Technologies 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 Coffee Holding with a short position of Trane Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee Holding and Trane Technologies.

Diversification Opportunities for Coffee Holding and Trane Technologies

0.38

Correlation Coefficient

Coffee Holding  Trane Technologies

Weak diversification

The 3 months correlation between Coffee and Trane is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Holding Co and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc and Coffee Holding 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 Coffee Holding Co are associated (or correlated) with Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Coffee Holding i.e., Coffee Holding and Trane Technologies go up and down completely randomly.

Pair Corralation between Coffee Holding and Trane Technologies

Assuming the 90 days horizon Coffee Holding Co is expected to generate 3.21 times more return on investment than Trane Technologies. However, Coffee Holding is 3.21 times more volatile than Trane Technologies plc. It trades about 0.05 of its potential returns per unit of risk. Trane Technologies plc is currently generating about 0.1 per unit of risk. If you would invest  206.00  in Coffee Holding Co on October 5, 2024 and sell it today you would earn a total of  154.00  from holding Coffee Holding Co or generate 74.76% return on investment over 90 days.

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

Coffee Holding Co  vs.  Trane Technologies plc

Coffee Holding

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Coffee Holding Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Coffee Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Trane Technologies plc

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Trane Technologies plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Trane Technologies is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Coffee Holding and Trane Technologies

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

The idea behind Coffee Holding Co and Trane Technologies plc 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.