Correlation Between CVC and Flare

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

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

Diversification Opportunities for CVC and Flare

0.5

Correlation Coefficient

CVC  Flare

Very weak diversification

The 3 months correlation between CVC and Flare is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding CVC and Flare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flare and CVC 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 CVC are associated (or correlated) with Flare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flare has no effect on the direction of CVC i.e., CVC and Flare go up and down completely randomly.

Pair Corralation between CVC and Flare

Assuming the 90 days trading horizon CVC is expected to generate 1.1 times more return on investment than Flare. However, CVC is 1.1 times more volatile than Flare. It trades about 0.17 of its potential returns per unit of risk. Flare is currently generating about 0.17 per unit of risk. If you would invest  9.00  in CVC on September 3, 2024 and sell it today you would earn a total of  8.00  from holding CVC or generate 88.89% return on investment over 90 days.

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

CVC  vs.  Flare

CVC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CVC are ranked lower than 12 (%) 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.

Flare

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with CVC and Flare

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

The idea behind CVC and Flare 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.