Correlation Between CAPP and Shrapnel

Can any of the company-specific risk be diversified away by investing in both CAPP and Shrapnel 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 Shrapnel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CAPP and Shrapnel, you can compare the effects of market volatilities on CAPP and Shrapnel 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 Shrapnel. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAPP and Shrapnel.

Diversification Opportunities for CAPP and Shrapnel

-0.37

Correlation Coefficient

CAPP  Shrapnel

Very good diversification

The 3 months correlation between CAPP and Shrapnel is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and Shrapnel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shrapnel 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 Shrapnel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shrapnel has no effect on the direction of CAPP i.e., CAPP and Shrapnel go up and down completely randomly.

Pair Corralation between CAPP and Shrapnel

Assuming the 90 days trading horizon CAPP is expected to generate 0.26 times more return on investment than Shrapnel. However, CAPP is 3.87 times less risky than Shrapnel. It trades about -0.01 of its potential returns per unit of risk. Shrapnel is currently generating about -0.1 per unit of risk. If you would invest  0.01  in CAPP on January 30, 2024 and sell it today you would lose  0.00  from holding CAPP or give up 1.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CAPP  vs.  Shrapnel

CAPP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAPP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady basic indicators, CAPP may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Shrapnel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shrapnel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Shrapnel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAPP and Shrapnel

The main advantage of trading using opposite CAPP and Shrapnel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAPP position performs unexpectedly, Shrapnel 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 Shrapnel will offset losses from the drop in Shrapnel's long position.

The idea behind CAPP and Shrapnel 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.