Correlation Between Capri Holdings and General Dynamics

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

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

Diversification Opportunities for Capri Holdings and General Dynamics

0.32

Correlation Coefficient

Capri Holdings  General Dynamics

Weak diversification

The 3 months correlation between Capri and General is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Capri Holdings and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Capri Holdings 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 Capri Holdings are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Capri Holdings i.e., Capri Holdings and General Dynamics go up and down completely randomly.

Pair Corralation between Capri Holdings and General Dynamics

Given the investment horizon of 90 days Capri Holdings is expected to generate 1.77 times more return on investment than General Dynamics. However, Capri Holdings is 1.77 times more volatile than General Dynamics. It trades about 0.19 of its potential returns per unit of risk. General Dynamics is currently generating about -0.14 per unit of risk. If you would invest  2,048  in Capri Holdings on August 30, 2024 and sell it today you would earn a total of  304.00  from holding Capri Holdings or generate 14.84% return on investment over 90 days.

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

Capri Holdings  vs.  General Dynamics

Capri Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capri Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, General Dynamics is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Capri Holdings and General Dynamics

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

The idea behind Capri Holdings and General Dynamics 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .