Correlation Between CMT and KARRAT

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

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

Diversification Opportunities for CMT and KARRAT

0.01

Correlation Coefficient

CMT  KARRAT

Significant diversification

The 3 months correlation between CMT and KARRAT is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding CMT and KARRAT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KARRAT and CMT 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 CMT are associated (or correlated) with KARRAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KARRAT has no effect on the direction of CMT i.e., CMT and KARRAT go up and down completely randomly.

Pair Corralation between CMT and KARRAT

Assuming the 90 days trading horizon CMT is expected to generate 0.23 times more return on investment than KARRAT. However, CMT is 4.43 times less risky than KARRAT. It trades about -0.05 of its potential returns per unit of risk. KARRAT is currently generating about -0.15 per unit of risk. If you would invest  0.77  in CMT on November 27, 2024 and sell it today you would lose (0.07) from holding CMT or give up 8.95% of portfolio value over 90 days.

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

CMT  vs.  KARRAT

CMT

Risk-Adjusted Performance

Very Weak

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

KARRAT

Risk-Adjusted Performance

Very Weak

Over the last 90 days KARRAT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Crypto's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for KARRAT investors.

Pair Trading with CMT and KARRAT

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

The idea behind CMT and KARRAT 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.