Correlation Between ATT and Spot Coffee

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

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

Diversification Opportunities for ATT and Spot Coffee

0.12

Correlation Coefficient

ATT  Spot Coffee

Average diversification

The 3 months correlation between ATT and Spot is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Spot Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spot Coffee and ATT 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 ATT Inc are associated (or correlated) with Spot Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spot Coffee has no effect on the direction of ATT i.e., ATT and Spot Coffee go up and down completely randomly.

Pair Corralation between ATT and Spot Coffee

Taking into account the 90-day investment horizon ATT is expected to generate 20.58 times less return on investment than Spot Coffee. But when comparing it to its historical volatility, ATT Inc is 21.63 times less risky than Spot Coffee. It trades about 0.2 of its potential returns per unit of risk. Spot Coffee is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  0.10  in Spot Coffee on December 25, 2024 and sell it today you would earn a total of  0.13  from holding Spot Coffee or generate 130.0% return on investment over 90 days.

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

ATT Inc  vs.  Spot Coffee

ATT Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ATT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Spot Coffee

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Spot Coffee are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Spot Coffee reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ATT and Spot Coffee

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

The idea behind ATT Inc and Spot Coffee 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.