Correlation Between Cool and Capital Product

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

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

Diversification Opportunities for Cool and Capital Product

-0.27

Correlation Coefficient

Cool  Capital Product

Very good diversification

The 3 months correlation between Cool and Capital is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Cool Company and Capital Product Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Product Partners and Cool 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 Cool Company are associated (or correlated) with Capital Product. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Product Partners has no effect on the direction of Cool i.e., Cool and Capital Product go up and down completely randomly.

Pair Corralation between Cool and Capital Product

Given the investment horizon of 90 days Cool Company is expected to generate 0.85 times more return on investment than Capital Product. However, Cool Company is 1.17 times less risky than Capital Product. It trades about 0.1 of its potential returns per unit of risk. Capital Product Partners is currently generating about -0.05 per unit of risk. If you would invest  1,120  in Cool Company on February 23, 2024 and sell it today you would earn a total of  73.00  from holding Cool Company or generate 6.52% return on investment over 90 days.

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

Cool Company  vs.  Capital Product Partners

Cool Company

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cool Company are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Cool is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Capital Product Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Product Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Cool and Capital Product

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

The idea behind Cool Company and Capital Product Partners 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.