Correlation Between CPI Card and Research Frontiers

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

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

Diversification Opportunities for CPI Card and Research Frontiers

-0.52

Correlation Coefficient

CPI Card  Research Frontiers

Excellent diversification

The 3 months correlation between CPI and Research is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding CPI Card Group and Research Frontiers Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Research Frontiers and CPI Card 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 CPI Card Group are associated (or correlated) with Research Frontiers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Research Frontiers has no effect on the direction of CPI Card i.e., CPI Card and Research Frontiers go up and down completely randomly.

Pair Corralation between CPI Card and Research Frontiers

Given the investment horizon of 90 days CPI Card Group is expected to generate 1.12 times more return on investment than Research Frontiers. However, CPI Card is 1.12 times more volatile than Research Frontiers Incorporated. It trades about 0.13 of its potential returns per unit of risk. Research Frontiers Incorporated is currently generating about 0.0 per unit of risk. If you would invest  2,579  in CPI Card Group on September 16, 2024 and sell it today you would earn a total of  851.00  from holding CPI Card Group or generate 33.0% return on investment over 90 days.

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

CPI Card Group  vs.  Research Frontiers Incorporate

CPI Card Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CPI Card Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, CPI Card unveiled solid returns over the last few months and may actually be approaching a breakup point.

Research Frontiers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Research Frontiers Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Research Frontiers is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with CPI Card and Research Frontiers

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

The idea behind CPI Card Group and Research Frontiers Incorporated 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.