Correlation Between ETFS Coffee and Trane Technologies

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

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

Diversification Opportunities for ETFS Coffee and Trane Technologies

0.44

Correlation Coefficient

ETFS Coffee  Trane Technologies

Very weak diversification

The 3 months correlation between ETFS and Trane is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding ETFS Coffee ETC 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 ETFS Coffee 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 ETFS Coffee ETC 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 ETFS Coffee i.e., ETFS Coffee and Trane Technologies go up and down completely randomly.

Pair Corralation between ETFS Coffee and Trane Technologies

Assuming the 90 days trading horizon ETFS Coffee ETC is expected to generate 27.72 times more return on investment than Trane Technologies. However, ETFS Coffee is 27.72 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  85.00  in ETFS Coffee ETC on October 5, 2024 and sell it today you would earn a total of  5,096  from holding ETFS Coffee ETC or generate 5995.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.8%
Values	Daily Returns

ETFS Coffee ETC  vs.  Trane Technologies plc

ETFS Coffee ETC

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ETFS Coffee ETC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, ETFS Coffee 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 ETFS Coffee and Trane Technologies

The main advantage of trading using opposite ETFS Coffee and Trane Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETFS Coffee 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 ETFS Coffee ETC 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.