Correlation Between Capital Income and LiCycle Holdings

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

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

Diversification Opportunities for Capital Income and LiCycle Holdings

0.4

Correlation Coefficient

Capital Income  LiCycle Holdings

Very weak diversification

The 3 months correlation between Capital and LiCycle is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and LiCycle Holdings Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LiCycle Holdings Corp and Capital Income 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 Income Builder are associated (or correlated) with LiCycle Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LiCycle Holdings Corp has no effect on the direction of Capital Income i.e., Capital Income and LiCycle Holdings go up and down completely randomly.

Pair Corralation between Capital Income and LiCycle Holdings

Assuming the 90 days horizon Capital Income is expected to generate 229.4 times less return on investment than LiCycle Holdings. But when comparing it to its historical volatility, Capital Income Builder is 22.93 times less risky than LiCycle Holdings. It trades about 0.01 of its potential returns per unit of risk. LiCycle Holdings Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  138.00  in LiCycle Holdings Corp on August 30, 2024 and sell it today you would earn a total of  79.00  from holding LiCycle Holdings Corp or generate 57.25% return on investment over 90 days.

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

Capital Income Builder  vs.  LiCycle Holdings Corp

Capital Income Builder

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

LiCycle Holdings Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LiCycle Holdings Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, LiCycle Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Income and LiCycle Holdings

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

The idea behind Capital Income Builder and LiCycle Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.