Correlation Between CAPP and XMX
Can any of the company-specific risk be diversified away by investing in both CAPP and XMX 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 XMX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CAPP and XMX, you can compare the effects of market volatilities on CAPP and XMX 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 XMX. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAPP and XMX.
Diversification Opportunities for CAPP and XMX
Very good diversification
The 3 months correlation between CAPP and XMX is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and XMX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XMX 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 XMX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XMX has no effect on the direction of CAPP i.e., CAPP and XMX go up and down completely randomly.
Pair Corralation between CAPP and XMX
Assuming the 90 days trading horizon CAPP is expected to generate 2.7 times more return on investment than XMX. However, CAPP is 2.7 times more volatile than XMX. It trades about 0.07 of its potential returns per unit of risk. XMX is currently generating about 0.02 per unit of risk. If you would invest 0.03 in CAPP on November 9, 2024 and sell it today you would lose (0.03) from holding CAPP or give up 81.93% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CAPP vs. XMX
Performance |
| Timeline |
| CAPP |
| XMX |
CAPP and XMX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CAPP and XMX
The main advantage of trading using opposite CAPP and XMX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAPP position performs unexpectedly, XMX 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 XMX will offset losses from the drop in XMX's long position.The idea behind CAPP and XMX 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
Other Complementary Tools
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA | |
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Commodity Directory Find actively traded commodities issued by global exchanges |