Correlation Between Ribbon Finance and CVP

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

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

Diversification Opportunities for Ribbon Finance and CVP

0.58

Correlation Coefficient

Ribbon Finance  CVP

Very weak diversification

The 3 months correlation between Ribbon and CVP is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Ribbon Finance and CVP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVP and Ribbon Finance 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 Ribbon Finance are associated (or correlated) with CVP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVP has no effect on the direction of Ribbon Finance i.e., Ribbon Finance and CVP go up and down completely randomly.

Pair Corralation between Ribbon Finance and CVP

Assuming the 90 days trading horizon Ribbon Finance is expected to generate 11.72 times less return on investment than CVP. But when comparing it to its historical volatility, Ribbon Finance is 12.7 times less risky than CVP. It trades about 0.16 of its potential returns per unit of risk. CVP is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3.11  in CVP on September 1, 2024 and sell it today you would earn a total of  10.89  from holding CVP or generate 350.16% return on investment over 90 days.

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

Ribbon Finance  vs.  CVP

Ribbon Finance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Finance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ribbon Finance exhibited solid returns over the last few months and may actually be approaching a breakup point.

CVP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CVP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CVP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ribbon Finance and CVP

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

The idea behind Ribbon Finance and CVP 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.