Correlation Between CAPP and Nano

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

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

Diversification Opportunities for CAPP and Nano

0.07

Correlation Coefficient

CAPP  Nano

Significant diversification

The 3 months correlation between CAPP and Nano is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding CAPP and Nano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nano 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 Nano. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nano has no effect on the direction of CAPP i.e., CAPP and Nano go up and down completely randomly.

Pair Corralation between CAPP and Nano

Assuming the 90 days trading horizon CAPP is expected to under-perform the Nano. But the crypto coin apears to be less risky and, when comparing its historical volatility, CAPP is 3.91 times less risky than Nano. The crypto coin trades about -0.01 of its potential returns per unit of risk. The Nano is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  134.00  in Nano on November 27, 2024 and sell it today you would lose (27.00) from holding Nano or give up 20.15% of portfolio value over 90 days.

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

CAPP  vs.  Nano

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 rather sound fundamental indicators, CAPP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nano

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nano has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady fundamental indicators, Nano may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with CAPP and Nano

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

The idea behind CAPP and Nano 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.