Correlation Between CPN Retail and CPN Commercial

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

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

Diversification Opportunities for CPN Retail and CPN Commercial

0.08

Correlation Coefficient

CPN Retail  CPN Commercial

Significant diversification

The 3 months correlation between CPN and CPN is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding CPN Retail Growth and CPN Commercial Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPN Commercial Growth and CPN Retail 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 CPN Retail Growth are associated (or correlated) with CPN Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPN Commercial Growth has no effect on the direction of CPN Retail i.e., CPN Retail and CPN Commercial go up and down completely randomly.

Pair Corralation between CPN Retail and CPN Commercial

Assuming the 90 days trading horizon CPN Retail Growth is expected to generate 1.7 times more return on investment than CPN Commercial. However, CPN Retail is 1.7 times more volatile than CPN Commercial Growth. It trades about -0.01 of its potential returns per unit of risk. CPN Commercial Growth is currently generating about -0.06 per unit of risk. If you would invest  1,220  in CPN Retail Growth on December 30, 2024 and sell it today you would lose (20.00) from holding CPN Retail Growth or give up 1.64% of portfolio value over 90 days.

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

CPN Retail Growth  vs.  CPN Commercial Growth

CPN Retail Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days CPN Retail Growth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CPN Retail is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

CPN Commercial Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days CPN Commercial Growth has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, CPN Commercial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CPN Retail and CPN Commercial

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

The idea behind CPN Retail Growth and CPN Commercial Growth 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.