Correlation Between DATA and CAPP

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

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

Diversification Opportunities for DATA and CAPP

0.82

Correlation Coefficient

DATA  CAPP

Very poor diversification

The 3 months correlation between DATA and CAPP is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding DATA and CAPP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAPP and DATA 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 DATA are associated (or correlated) with CAPP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAPP has no effect on the direction of DATA i.e., DATA and CAPP go up and down completely randomly.

Pair Corralation between DATA and CAPP

Assuming the 90 days trading horizon DATA is expected to under-perform the CAPP. In addition to that, DATA is 2.41 times more volatile than CAPP. It trades about -0.08 of its total potential returns per unit of risk. CAPP is currently generating about -0.11 per unit of volatility. If you would invest  0.01  in CAPP on June 9, 2025 and sell it today you would lose  0.00  from holding CAPP or give up 5.71% of portfolio value over 90 days.

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

DATA  vs.  CAPP

DATA

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DATA exhibited solid returns over the last few months and may actually be approaching a breakup point.

CAPP

Risk-Adjusted Performance

Weakest

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

Pair Trading with DATA and CAPP

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

The idea behind DATA and CAPP 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.