Correlation Between CAPP and Kava

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

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

Diversification Opportunities for CAPP and Kava

0.13

Correlation Coefficient

CAPP  Kava

Average diversification

The 3 months correlation between CAPP and Kava is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and Kava in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kava and CAPP 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 CAPP are associated (or correlated) with Kava. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kava has no effect on the direction of CAPP i.e., CAPP and Kava go up and down completely randomly.

Pair Corralation between CAPP and Kava

Assuming the 90 days trading horizon CAPP is expected to under-perform the Kava. But the crypto coin apears to be less risky and, when comparing its historical volatility, CAPP is 1.95 times less risky than Kava. The crypto coin trades about -0.05 of its potential returns per unit of risk. The Kava is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  44.00  in Kava on December 30, 2024 and sell it today you would lose (2.00) from holding Kava or give up 4.55% of portfolio value over 90 days.

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

CAPP  vs.  Kava

CAPP

Risk-Adjusted Performance

Very Weak

Over the last 90 days CAPP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for CAPP shareholders.

Kava

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kava has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Kava is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CAPP and Kava

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

The idea behind CAPP and Kava 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 CEOs Directory module to screen CEOs from public companies around the world.