Correlation Between Walker Dunlop and CAPP

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

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

Diversification Opportunities for Walker Dunlop and CAPP

-0.38

Correlation Coefficient

Walker Dunlop  CAPP

Very good diversification

The 3 months correlation between Walker and CAPP is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Walker Dunlop and CAPP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAPP and Walker Dunlop 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 Walker Dunlop are associated (or correlated) with CAPP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAPP has no effect on the direction of Walker Dunlop i.e., Walker Dunlop and CAPP go up and down completely randomly.

Pair Corralation between Walker Dunlop and CAPP

Allowing for the 90-day total investment horizon Walker Dunlop is expected to generate 19.62 times less return on investment than CAPP. But when comparing it to its historical volatility, Walker Dunlop is 10.35 times less risky than CAPP. It trades about 0.05 of its potential returns per unit of risk. CAPP is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.02  in CAPP on August 30, 2024 and sell it today you would lose (0.01) from holding CAPP or give up 66.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	60.2%
Values	Daily Returns

Walker Dunlop  vs.  CAPP

Walker Dunlop

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Walker Dunlop are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Walker Dunlop is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

CAPP

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CAPP are ranked lower than 2 (%) 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.

Pair Trading with Walker Dunlop and CAPP

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

The idea behind Walker Dunlop and CAPP 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.