Correlation Between CVW CleanTech and Western Investment

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

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

Diversification Opportunities for CVW CleanTech and Western Investment

0.32

Correlation Coefficient

CVW CleanTech  Western Investment

Weak diversification

The 3 months correlation between CVW and Western is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding CVW CleanTech and Western Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Investment and CVW CleanTech 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 CVW CleanTech are associated (or correlated) with Western Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Investment has no effect on the direction of CVW CleanTech i.e., CVW CleanTech and Western Investment go up and down completely randomly.

Pair Corralation between CVW CleanTech and Western Investment

Assuming the 90 days horizon CVW CleanTech is expected to generate 71.37 times less return on investment than Western Investment. But when comparing it to its historical volatility, CVW CleanTech is 2.57 times less risky than Western Investment. It trades about 0.01 of its potential returns per unit of risk. Western Investment is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Western Investment on September 23, 2024 and sell it today you would earn a total of  11.00  from holding Western Investment or generate 26.19% return on investment over 90 days.

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

CVW CleanTech  vs.  Western Investment

CVW CleanTech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVW CleanTech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CVW CleanTech is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Western Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVW CleanTech and Western Investment

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

The idea behind CVW CleanTech and Western Investment 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..