Correlation Between CHP and CAPP
Can any of the company-specific risk be diversified away by investing in both CHP and CAPP 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 CHP and CAPP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CHP and CAPP, you can compare the effects of market volatilities on CHP and CAPP 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 CHP with a short position of CAPP. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHP and CAPP.
Diversification Opportunities for CHP and CAPP
Weak diversification
The 3 months correlation between CHP and CAPP is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding CHP and CAPP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAPP and CHP 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 CHP are associated (or correlated) with CAPP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAPP has no effect on the direction of CHP i.e., CHP and CAPP go up and down completely randomly.
Pair Corralation between CHP and CAPP
Assuming the 90 days trading horizon CHP is expected to under-perform the CAPP. In addition to that, CHP is 2.48 times more volatile than CAPP. It trades about -0.13 of its total potential returns per unit of risk. CAPP is currently generating about 0.13 per unit of volatility. If you would invest 0.01 in CAPP on November 9, 2024 and sell it today you would earn a total of 0.00 from holding CAPP or generate 5.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CHP vs. CAPP
Performance |
| Timeline |
| CHP |
| CAPP |
CHP and CAPP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CHP and CAPP
The main advantage of trading using opposite CHP and CAPP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHP position performs unexpectedly, CAPP 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 CAPP will offset losses from the drop in CAPP's long position.The idea behind CHP and CAPP 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
Other Complementary Tools
| 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 | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like |