Correlation Between Capri Holdings and Reynolds

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

By analyzing existing cross correlation between Capri Holdings and Reynolds American 725, you can compare the effects of market volatilities on Capri Holdings and Reynolds 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 Reynolds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capri Holdings and Reynolds.

Diversification Opportunities for Capri Holdings and Reynolds

-0.04

Correlation Coefficient

Capri Holdings  Reynolds

Good diversification

The 3 months correlation between Capri and Reynolds is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Capri Holdings and Reynolds American 725 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reynolds American 725 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 Reynolds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reynolds American 725 has no effect on the direction of Capri Holdings i.e., Capri Holdings and Reynolds go up and down completely randomly.

Pair Corralation between Capri Holdings and Reynolds

Given the investment horizon of 90 days Capri Holdings is expected to under-perform the Reynolds. In addition to that, Capri Holdings is 4.28 times more volatile than Reynolds American 725. It trades about -0.07 of its total potential returns per unit of risk. Reynolds American 725 is currently generating about -0.08 per unit of volatility. If you would invest  11,390  in Reynolds American 725 on November 28, 2024 and sell it today you would lose (384.00) from holding Reynolds American 725 or give up 3.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.55%
Values	Daily Returns

Capri Holdings  vs.  Reynolds American 725

Capri Holdings

Risk-Adjusted Performance

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 March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Reynolds American 725

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reynolds American 725 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Reynolds is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capri Holdings and Reynolds

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

The idea behind Capri Holdings and Reynolds American 725 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.