Correlation Between CAPP and MLN
Can any of the company-specific risk be diversified away by investing in both CAPP and MLN 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 MLN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CAPP and MLN, you can compare the effects of market volatilities on CAPP and MLN 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 MLN. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAPP and MLN.
Diversification Opportunities for CAPP and MLN
Average diversification
The 3 months correlation between CAPP and MLN is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and MLN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MLN 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 MLN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MLN has no effect on the direction of CAPP i.e., CAPP and MLN go up and down completely randomly.
Pair Corralation between CAPP and MLN
Assuming the 90 days trading horizon CAPP is expected to generate 1.12 times less return on investment than MLN. But when comparing it to its historical volatility, CAPP is 1.15 times less risky than MLN. It trades about 0.37 of its potential returns per unit of risk. MLN is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 1,481 in MLN on September 4, 2024 and sell it today you would earn a total of 680.00 from holding MLN or generate 45.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CAPP vs. MLN
Performance |
| Timeline |
| CAPP |
| MLN |
CAPP and MLN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CAPP and MLN
The main advantage of trading using opposite CAPP and MLN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAPP position performs unexpectedly, MLN 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 MLN will offset losses from the drop in MLN's long position.The idea behind CAPP and MLN 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
Other Complementary Tools
| Portfolio Analyzer Portfolio analysis module that provides access to portfolio diagnostics and optimization engine | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Commodity Directory Find actively traded commodities issued by global exchanges | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments |