Correlation Between Earth Alive and CNJ Capital

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

By analyzing existing cross correlation between Earth Alive Clean and CNJ Capital Investments, you can compare the effects of market volatilities on Earth Alive and CNJ Capital 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 Earth Alive with a short position of CNJ Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Earth Alive and CNJ Capital.

Diversification Opportunities for Earth Alive and CNJ Capital

1.0

Correlation Coefficient

Earth Alive  CNJ Capital

No risk reduction

The 3 months correlation between Earth and CNJ is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Earth Alive Clean and CNJ Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNJ Capital Investments and Earth Alive 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 Earth Alive Clean are associated (or correlated) with CNJ Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNJ Capital Investments has no effect on the direction of Earth Alive i.e., Earth Alive and CNJ Capital go up and down completely randomly.

Pair Corralation between Earth Alive and CNJ Capital

Assuming the 90 days horizon Earth Alive Clean is expected to generate 3.28 times more return on investment than CNJ Capital. However, Earth Alive is 3.28 times more volatile than CNJ Capital Investments. It trades about 0.05 of its potential returns per unit of risk. CNJ Capital Investments is currently generating about 0.08 per unit of risk. If you would invest  2.00  in Earth Alive Clean on October 23, 2024 and sell it today you would lose (1.50) from holding Earth Alive Clean or give up 75.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	79.96%
Values	Daily Returns

Earth Alive Clean  vs.  CNJ Capital Investments

Earth Alive Clean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Earth Alive Clean has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Earth Alive is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

CNJ Capital Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNJ Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CNJ Capital is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Earth Alive and CNJ Capital

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

The idea behind Earth Alive Clean and CNJ Capital Investments 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.