Correlation Between CAPP and MNW

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

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

Diversification Opportunities for CAPP and MNW

0.39

Correlation Coefficient

CAPP  MNW

Weak diversification

The 3 months correlation between CAPP and MNW is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and MNW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MNW 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 MNW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MNW has no effect on the direction of CAPP i.e., CAPP and MNW go up and down completely randomly.

Pair Corralation between CAPP and MNW

Assuming the 90 days trading horizon CAPP is expected to generate 58.12 times less return on investment than MNW. But when comparing it to its historical volatility, CAPP is 18.49 times less risky than MNW. It trades about 0.05 of its potential returns per unit of risk. MNW is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  41.00  in MNW on September 1, 2024 and sell it today you would lose (1.00) from holding MNW or give up 2.44% of portfolio value over 90 days.

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

CAPP  vs.  MNW

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 fundamental indicators, CAPP exhibited solid returns over the last few months and may actually be approaching a breakup point.

MNW

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MNW are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MNW exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAPP and MNW

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

The idea behind CAPP and MNW 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..