Correlation Between Capital Futures and Capital Securities

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

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

Diversification Opportunities for Capital Futures and Capital Securities

0.68

Correlation Coefficient

Capital Futures  Capital Securities

Poor diversification

The 3 months correlation between Capital and Capital is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Capital Futures Corp and Capital Securities Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Securities Corp and Capital Futures 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 Futures Corp are associated (or correlated) with Capital Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Securities Corp has no effect on the direction of Capital Futures i.e., Capital Futures and Capital Securities go up and down completely randomly.

Pair Corralation between Capital Futures and Capital Securities

Assuming the 90 days trading horizon Capital Futures is expected to generate 3.84 times less return on investment than Capital Securities. But when comparing it to its historical volatility, Capital Futures Corp is 1.24 times less risky than Capital Securities. It trades about 0.06 of its potential returns per unit of risk. Capital Securities Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,055  in Capital Securities Corp on September 18, 2024 and sell it today you would earn a total of  305.00  from holding Capital Securities Corp or generate 14.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Capital Futures Corp  vs.  Capital Securities Corp

Capital Futures Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Futures Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Capital Futures is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Capital Securities Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Securities Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Capital Securities showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Futures and Capital Securities

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

The idea behind Capital Futures Corp and Capital Securities Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.