Correlation Between Capricorn Energy and Freehold Royalties

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

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

Diversification Opportunities for Capricorn Energy and Freehold Royalties

0.45

Correlation Coefficient

Capricorn Energy  Freehold Royalties

Very weak diversification

The 3 months correlation between Capricorn and Freehold is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Capricorn Energy PLC and Freehold Royalties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freehold Royalties and Capricorn Energy 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 Capricorn Energy PLC are associated (or correlated) with Freehold Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freehold Royalties has no effect on the direction of Capricorn Energy i.e., Capricorn Energy and Freehold Royalties go up and down completely randomly.

Pair Corralation between Capricorn Energy and Freehold Royalties

Assuming the 90 days horizon Capricorn Energy PLC is expected to generate 4.39 times more return on investment than Freehold Royalties. However, Capricorn Energy is 4.39 times more volatile than Freehold Royalties. It trades about 0.01 of its potential returns per unit of risk. Freehold Royalties is currently generating about 0.03 per unit of risk. If you would invest  740.00  in Capricorn Energy PLC on December 30, 2024 and sell it today you would lose (40.00) from holding Capricorn Energy PLC or give up 5.41% of portfolio value over 90 days.

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

Capricorn Energy PLC  vs.  Freehold Royalties

Capricorn Energy PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capricorn Energy PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Capricorn Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Freehold Royalties

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Freehold Royalties are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Freehold Royalties is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Capricorn Energy and Freehold Royalties

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

The idea behind Capricorn Energy PLC and Freehold Royalties 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.