Correlation Between Puffer and CAPP

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

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

Diversification Opportunities for Puffer and CAPP

0.5

Correlation Coefficient

Puffer  CAPP

Very weak diversification

The 3 months correlation between Puffer and CAPP is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Puffer and CAPP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAPP and Puffer 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 Puffer 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 Puffer i.e., Puffer and CAPP go up and down completely randomly.

Pair Corralation between Puffer and CAPP

Assuming the 90 days trading horizon Puffer is expected to generate 2.4 times more return on investment than CAPP. However, Puffer is 2.4 times more volatile than CAPP. It trades about 0.05 of its potential returns per unit of risk. CAPP is currently generating about 0.07 per unit of risk. If you would invest  0.00  in Puffer on February 8, 2025 and sell it today you would earn a total of  25.00  from holding Puffer or generate 9.223372036854776E16% return on investment over 90 days.

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

Puffer  vs.  CAPP

Puffer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Puffer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in June 2025. The current disturbance may also be a sign of long term up-swing for Puffer investors.

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.

Pair Trading with Puffer and CAPP

The main advantage of trading using opposite Puffer and CAPP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Puffer 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 Puffer 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.