Correlation Between CAPP and Big Time

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

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

Diversification Opportunities for CAPP and Big Time

-0.02

Correlation Coefficient

CAPP  Big Time

Good diversification

The 3 months correlation between CAPP and Big is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and Big Time in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Time 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 Big Time. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Time has no effect on the direction of CAPP i.e., CAPP and Big Time go up and down completely randomly.

Pair Corralation between CAPP and Big Time

Assuming the 90 days trading horizon CAPP is expected to generate 3.15 times more return on investment than Big Time. However, CAPP is 3.15 times more volatile than Big Time. It trades about 0.0 of its potential returns per unit of risk. Big Time is currently generating about -0.2 per unit of risk. If you would invest  0.01  in CAPP on February 7, 2024 and sell it today you would lose  0.00  from holding CAPP or give up 55.71% of portfolio value over 90 days.

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

CAPP  vs.  Big Time

CAPP

Risk-Adjusted Performance

3 of 100

Insignificant

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

Big Time

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Big Time are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, Big Time exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAPP and Big Time

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

The idea behind CAPP and Big Time 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.