Correlation Between CP ALL and Fancy Wood

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

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

Diversification Opportunities for CP ALL and Fancy Wood

0.21

Correlation Coefficient

CP ALL  Fancy Wood

Modest diversification

The 3 months correlation between CPALL and Fancy is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding CP ALL Public and Fancy Wood Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fancy Wood Industries and CP ALL 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 CP ALL Public are associated (or correlated) with Fancy Wood. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fancy Wood Industries has no effect on the direction of CP ALL i.e., CP ALL and Fancy Wood go up and down completely randomly.

Pair Corralation between CP ALL and Fancy Wood

Assuming the 90 days trading horizon CP ALL Public is expected to under-perform the Fancy Wood. But the stock apears to be less risky and, when comparing its historical volatility, CP ALL Public is 1.78 times less risky than Fancy Wood. The stock trades about -0.06 of its potential returns per unit of risk. The Fancy Wood Industries is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  38.00  in Fancy Wood Industries on December 30, 2024 and sell it today you would earn a total of  0.00  from holding Fancy Wood Industries or generate 0.0% return on investment over 90 days.

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

CP ALL Public  vs.  Fancy Wood Industries

CP ALL Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days CP ALL Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Fancy Wood Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fancy Wood Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Fancy Wood is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CP ALL and Fancy Wood

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

The idea behind CP ALL Public and Fancy Wood Industries 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.