Correlation Between CMT and FXP

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

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

Diversification Opportunities for CMT and FXP

0.0

Correlation Coefficient

CMT  FXP

Pay attention - limited upside

The 3 months correlation between CMT and FXP is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding CMT and FXP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FXP 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 FXP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FXP has no effect on the direction of CMT i.e., CMT and FXP go up and down completely randomly.

Pair Corralation between CMT and FXP

If you would invest  0.48  in CMT on August 25, 2024 and sell it today you would earn a total of  0.30  from holding CMT or generate 63.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	1.54%
Values	Daily Returns

CMT  vs.  FXP

CMT

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CMT are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CMT exhibited solid returns over the last few months and may actually be approaching a breakup point.

FXP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FXP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FXP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CMT and FXP

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

The idea behind CMT and FXP 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.