Correlation Between CMT and AGVC
Can any of the company-specific risk be diversified away by investing in both CMT and AGVC 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 CMT and AGVC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMT and AGVC, you can compare the effects of market volatilities on CMT and AGVC 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 CMT with a short position of AGVC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMT and AGVC.
Diversification Opportunities for CMT and AGVC
Modest diversification
The 3 months correlation between CMT and AGVC is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding CMT and AGVC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGVC and CMT 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 CMT are associated (or correlated) with AGVC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGVC has no effect on the direction of CMT i.e., CMT and AGVC go up and down completely randomly.
Pair Corralation between CMT and AGVC
Assuming the 90 days trading horizon CMT is expected to generate 4.11 times more return on investment than AGVC. However, CMT is 4.11 times more volatile than AGVC. It trades about 0.1 of its potential returns per unit of risk. AGVC is currently generating about 0.09 per unit of risk. If you would invest 0.12 in CMT on August 25, 2024 and sell it today you would earn a total of 0.66 from holding CMT or generate 551.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 55.33% |
| Values | Daily Returns |
CMT vs. AGVC
Performance |
| Timeline |
| CMT |
| AGVC |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
CMT and AGVC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMT and AGVC
The main advantage of trading using opposite CMT and AGVC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMT position performs unexpectedly, AGVC 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 AGVC will offset losses from the drop in AGVC's long position.The idea behind CMT and AGVC 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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