Correlation Between Prospector Capital and CF Acquisition
Can any of the company-specific risk be diversified away by investing in both Prospector Capital and CF Acquisition 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 Prospector Capital and CF Acquisition into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prospector Capital Equity and CF Acquisition Corp, you can compare the effects of market volatilities on Prospector Capital and CF Acquisition 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 Prospector Capital with a short position of CF Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prospector Capital and CF Acquisition.
Diversification Opportunities for Prospector Capital and CF Acquisition
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Prospector and CFIVW is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Prospector Capital Equity and CF Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Acquisition Corp and Prospector Capital 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 Prospector Capital Equity are associated (or correlated) with CF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Acquisition Corp has no effect on the direction of Prospector Capital i.e., Prospector Capital and CF Acquisition go up and down completely randomly.
Pair Corralation between Prospector Capital and CF Acquisition
Assuming the 90 days horizon Prospector Capital is expected to generate 1.54 times less return on investment than CF Acquisition. But when comparing it to its historical volatility, Prospector Capital Equity is 2.27 times less risky than CF Acquisition. It trades about 0.13 of its potential returns per unit of risk. CF Acquisition Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 4.81 in CF Acquisition Corp on September 3, 2024 and sell it today you would earn a total of 3.19 from holding CF Acquisition Corp or generate 66.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prospector Capital Equity vs. CF Acquisition Corp
Performance |
| Timeline |
| Prospector Capital Equity |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| CF Acquisition Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Prospector Capital and CF Acquisition Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prospector Capital and CF Acquisition
The main advantage of trading using opposite Prospector Capital and CF Acquisition positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prospector Capital position performs unexpectedly, CF Acquisition 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 CF Acquisition will offset losses from the drop in CF Acquisition's long position.The idea behind Prospector Capital Equity and CF Acquisition Corp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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