Correlation Between River and CVR Energy

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

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

Diversification Opportunities for River and CVR Energy

-0.7

Correlation Coefficient

River  CVR Energy

Excellent diversification

The 3 months correlation between River and CVR is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile and CVR Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVR Energy and River 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 River and Mercantile are associated (or correlated) with CVR Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVR Energy has no effect on the direction of River i.e., River and CVR Energy go up and down completely randomly.

Pair Corralation between River and CVR Energy

Assuming the 90 days trading horizon River is expected to generate 21.15 times less return on investment than CVR Energy. But when comparing it to its historical volatility, River and Mercantile is 4.14 times less risky than CVR Energy. It trades about 0.02 of its potential returns per unit of risk. CVR Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,653  in CVR Energy on October 6, 2024 and sell it today you would earn a total of  217.00  from holding CVR Energy or generate 13.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.56%
Values	Daily Returns

River and Mercantile  vs.  CVR Energy

River and Mercantile

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in River and Mercantile are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CVR Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVR Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with River and CVR Energy

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

The idea behind River and Mercantile and CVR Energy 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.