Correlation Between CMT and AKRO

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

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

Diversification Opportunities for CMT and AKRO

-0.43

Correlation Coefficient

CMT  AKRO

Very good diversification

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

Pair Corralation between CMT and AKRO

Assuming the 90 days trading horizon CMT is expected to generate 0.77 times more return on investment than AKRO. However, CMT is 1.3 times less risky than AKRO. It trades about 0.23 of its potential returns per unit of risk. AKRO is currently generating about 0.01 per unit of risk. If you would invest  0.47  in CMT on August 30, 2024 and sell it today you would earn a total of  0.29  from holding CMT or generate 60.46% return on investment over 90 days.

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

CMT  vs.  AKRO

CMT

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CMT are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CMT exhibited solid returns over the last few months and may actually be approaching a breakup point.

AKRO

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CMT and AKRO

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

The idea behind CMT and AKRO 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.