Correlation Between Oracle and WisdomTree Cocoa

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

By analyzing existing cross correlation between Oracle and WisdomTree Cocoa, you can compare the effects of market volatilities on Oracle and WisdomTree Cocoa 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 Oracle with a short position of WisdomTree Cocoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oracle and WisdomTree Cocoa.

Diversification Opportunities for Oracle and WisdomTree Cocoa

-0.35

Correlation Coefficient

Oracle  WisdomTree Cocoa

Very good diversification

The 3 months correlation between Oracle and WisdomTree is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Oracle and WisdomTree Cocoa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Cocoa and Oracle 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 Oracle are associated (or correlated) with WisdomTree Cocoa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Cocoa has no effect on the direction of Oracle i.e., Oracle and WisdomTree Cocoa go up and down completely randomly.

Pair Corralation between Oracle and WisdomTree Cocoa

Given the investment horizon of 90 days Oracle is expected to under-perform the WisdomTree Cocoa. But the stock apears to be less risky and, when comparing its historical volatility, Oracle is 1.3 times less risky than WisdomTree Cocoa. The stock trades about -0.03 of its potential returns per unit of risk. The WisdomTree Cocoa is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,448  in WisdomTree Cocoa on December 2, 2024 and sell it today you would lose (59.00) from holding WisdomTree Cocoa or give up 4.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Oracle  vs.  WisdomTree Cocoa

Oracle

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oracle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Oracle is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

WisdomTree Cocoa

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree Cocoa has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, WisdomTree Cocoa is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Oracle and WisdomTree Cocoa

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

The idea behind Oracle and WisdomTree Cocoa 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.