Correlation Between TNB and CAPP

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

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

Diversification Opportunities for TNB and CAPP

1.0

Correlation Coefficient

TNB  CAPP

No risk reduction

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

Pair Corralation between TNB and CAPP

Assuming the 90 days trading horizon TNB is expected to under-perform the CAPP. In addition to that, TNB is 1.06 times more volatile than CAPP. It trades about -0.05 of its total potential returns per unit of risk. CAPP is currently generating about -0.04 per unit of volatility. If you would invest  0.01  in CAPP on December 29, 2024 and sell it today you would lose  0.00  from holding CAPP or give up 7.14% of portfolio value over 90 days.

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

TNB  vs.  CAPP

TNB

Risk-Adjusted Performance

Very Weak

Over the last 90 days TNB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for TNB shareholders.

CAPP

Risk-Adjusted Performance

Very Weak

Over the last 90 days CAPP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, CAPP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with TNB and CAPP

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

The idea behind TNB and CAPP 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.