Correlation Between Coffee Holding and Chevron

Can any of the company-specific risk be diversified away by investing in both Coffee Holding and Chevron 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 Chevron 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 Chevron, you can compare the effects of market volatilities on Coffee Holding and Chevron 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 Chevron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee Holding and Chevron.

Diversification Opportunities for Coffee Holding and Chevron

0.44

Correlation Coefficient

Coffee Holding  Chevron

Very weak diversification

The 3 months correlation between Coffee and Chevron is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Holding Co and Chevron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron 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 Chevron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron has no effect on the direction of Coffee Holding i.e., Coffee Holding and Chevron go up and down completely randomly.

Pair Corralation between Coffee Holding and Chevron

Assuming the 90 days horizon Coffee Holding Co is expected to generate 3.93 times more return on investment than Chevron. However, Coffee Holding is 3.93 times more volatile than Chevron. It trades about 0.12 of its potential returns per unit of risk. Chevron is currently generating about 0.1 per unit of risk. If you would invest  258.00  in Coffee Holding Co on October 8, 2024 and sell it today you would earn a total of  88.00  from holding Coffee Holding Co or generate 34.11% return on investment over 90 days.

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

Coffee Holding Co  vs.  Chevron

Coffee Holding

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Coffee Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Chevron

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Chevron may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Coffee Holding and Chevron

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

The idea behind Coffee Holding Co and Chevron 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.