Correlation Between API3 and CVC

Can any of the company-specific risk be diversified away by investing in both API3 and CVC 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 API3 and CVC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between API3 and CVC, you can compare the effects of market volatilities on API3 and CVC 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 API3 with a short position of CVC. Check out your portfolio center. Please also check ongoing floating volatility patterns of API3 and CVC.

Diversification Opportunities for API3 and CVC

0.43

Correlation Coefficient

API3  CVC

Very weak diversification

The 3 months correlation between API3 and CVC is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding API3 and CVC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVC and API3 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 API3 are associated (or correlated) with CVC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVC has no effect on the direction of API3 i.e., API3 and CVC go up and down completely randomly.

Pair Corralation between API3 and CVC

Assuming the 90 days trading horizon API3 is expected to generate 1.29 times less return on investment than CVC. But when comparing it to its historical volatility, API3 is 1.33 times less risky than CVC. It trades about 0.17 of its potential returns per unit of risk. CVC is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  8.81  in CVC on September 2, 2024 and sell it today you would earn a total of  8.19  from holding CVC or generate 92.96% return on investment over 90 days.

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

API3  vs.  CVC

API3

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in API3 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, API3 exhibited solid returns over the last few months and may actually be approaching a breakup point.

CVC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CVC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, CVC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with API3 and CVC

The main advantage of trading using opposite API3 and CVC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if API3 position performs unexpectedly, CVC 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 CVC will offset losses from the drop in CVC's long position.

The idea behind API3 and CVC 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.