Correlation Between CAPP and Illuvium
Can any of the company-specific risk be diversified away by investing in both CAPP and Illuvium 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 CAPP and Illuvium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CAPP and Illuvium, you can compare the effects of market volatilities on CAPP and Illuvium 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 CAPP with a short position of Illuvium. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAPP and Illuvium.
Diversification Opportunities for CAPP and Illuvium
Very weak diversification
The 3 months correlation between CAPP and Illuvium is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and Illuvium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illuvium and CAPP 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 CAPP are associated (or correlated) with Illuvium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illuvium has no effect on the direction of CAPP i.e., CAPP and Illuvium go up and down completely randomly.
Pair Corralation between CAPP and Illuvium
Assuming the 90 days trading horizon CAPP is expected to generate 1.92 times less return on investment than Illuvium. But when comparing it to its historical volatility, CAPP is 1.25 times less risky than Illuvium. It trades about 0.37 of its potential returns per unit of risk. Illuvium is currently generating about 0.57 of returns per unit of risk over similar time horizon. If you would invest 3,210 in Illuvium on September 4, 2024 and sell it today you would earn a total of 2,971 from holding Illuvium or generate 92.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CAPP vs. Illuvium
Performance |
| Timeline |
| CAPP |
| Illuvium |
CAPP and Illuvium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CAPP and Illuvium
The main advantage of trading using opposite CAPP and Illuvium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAPP position performs unexpectedly, Illuvium 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 Illuvium will offset losses from the drop in Illuvium's long position.The idea behind CAPP and Illuvium 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
Other Complementary Tools
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm |