Correlation Between Capital Ice and Capital ICE

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

By analyzing existing cross correlation between Capital Ice 7 and Capital ICE 15, you can compare the effects of market volatilities on Capital Ice and Capital ICE 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 Capital Ice with a short position of Capital ICE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Ice and Capital ICE.

Diversification Opportunities for Capital Ice and Capital ICE

0.55

Correlation Coefficient

Capital Ice  Capital ICE

Very weak diversification

The 3 months correlation between Capital and Capital is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Capital Ice 7 and Capital ICE 15 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital ICE 15 and Capital Ice 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 Capital Ice 7 are associated (or correlated) with Capital ICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital ICE 15 has no effect on the direction of Capital Ice i.e., Capital Ice and Capital ICE go up and down completely randomly.

Pair Corralation between Capital Ice and Capital ICE

Assuming the 90 days trading horizon Capital Ice is expected to generate 1.58 times less return on investment than Capital ICE. But when comparing it to its historical volatility, Capital Ice 7 is 1.24 times less risky than Capital ICE. It trades about 0.08 of its potential returns per unit of risk. Capital ICE 15 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,630  in Capital ICE 15 on September 17, 2024 and sell it today you would earn a total of  47.00  from holding Capital ICE 15 or generate 1.29% return on investment over 90 days.

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

Capital Ice 7  vs.  Capital ICE 15

Capital Ice 7

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Ice 7 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Capital Ice is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Capital ICE 15

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital ICE 15 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Capital ICE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital Ice and Capital ICE

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

The idea behind Capital Ice 7 and Capital ICE 15 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.