Correlation Between Prime Office and CPN Commercial

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

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

Diversification Opportunities for Prime Office and CPN Commercial

0.75

Correlation Coefficient

Prime Office  CPN Commercial

Poor diversification

The 3 months correlation between Prime and CPN is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Prime Office Leasehold 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 Prime Office 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 Prime Office Leasehold 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 Prime Office i.e., Prime Office and CPN Commercial go up and down completely randomly.

Pair Corralation between Prime Office and CPN Commercial

Assuming the 90 days trading horizon Prime Office Leasehold is expected to generate 0.79 times more return on investment than CPN Commercial. However, Prime Office Leasehold is 1.27 times less risky than CPN Commercial. It trades about 0.19 of its potential returns per unit of risk. CPN Commercial Growth is currently generating about 0.1 per unit of risk. If you would invest  545.00  in Prime Office Leasehold on August 31, 2024 and sell it today you would earn a total of  75.00  from holding Prime Office Leasehold or generate 13.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Prime Office Leasehold  vs.  CPN Commercial Growth

Prime Office Leasehold

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Office Leasehold are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. Despite quite weak forward-looking signals, Prime Office disclosed solid returns over the last few months and may actually be approaching a breakup point.

CPN Commercial Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CPN Commercial Growth are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, CPN Commercial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Prime Office and CPN Commercial

The main advantage of trading using opposite Prime Office and CPN Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prime Office 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 Prime Office Leasehold 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.