Dominant Price Relationships, Wavelet Coherence and Wavelet Power Spectrum Between the Futures Markets of the Arabica and Robusta Coffee Varieties

Abstract

The present work investigates the contemporaneous co-movement between the futures prices of Arabica and Robusta coffee varieties using the highly flexible Wavelet Local Multiple Correlation analysis. The data are daily observations between 2010 and 2025. The empirical findings indicate that the correlation of returns tends to increase as the timescale increases, except for the Covid-19 period. Dominant heatmaps show that Arabica acts as the dominant variable, suggesting that the futures prices of the Arabica variety incorporate the adjustment process in the Arabica-Robusta relationship. The moderate level of the realized volatility in high and medium frequencies suggests potential diversification benefits for short-term traders, while the dominant variable offers a useful reference for forecasting between the two varieties.