Correlation Between CAPP and EigenLayer

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

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

Diversification Opportunities for CAPP and EigenLayer

0.42

Correlation Coefficient

CAPP  EigenLayer

Very weak diversification

The 3 months correlation between CAPP and EigenLayer is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and EigenLayer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EigenLayer 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 EigenLayer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EigenLayer has no effect on the direction of CAPP i.e., CAPP and EigenLayer go up and down completely randomly.

Pair Corralation between CAPP and EigenLayer

Assuming the 90 days trading horizon CAPP is expected to generate 2.89 times less return on investment than EigenLayer. But when comparing it to its historical volatility, CAPP is 4.63 times less risky than EigenLayer. It trades about 0.41 of its potential returns per unit of risk. EigenLayer is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  86.00  in EigenLayer on February 10, 2025 and sell it today you would earn a total of  62.00  from holding EigenLayer or generate 72.09% return on investment over 90 days.

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

CAPP  vs.  EigenLayer

CAPP

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CAPP are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, CAPP exhibited solid returns over the last few months and may actually be approaching a breakup point.

EigenLayer

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EigenLayer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, EigenLayer exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAPP and EigenLayer

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

The idea behind CAPP and EigenLayer 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.