Correlation Between Compound and Morpho

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

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

Diversification Opportunities for Compound and Morpho

0.33

Correlation Coefficient

Compound  Morpho

Weak diversification

The 3 months correlation between Compound and Morpho is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Compound and Morpho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morpho and Compound 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 Compound are associated (or correlated) with Morpho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morpho has no effect on the direction of Compound i.e., Compound and Morpho go up and down completely randomly.

Pair Corralation between Compound and Morpho

Assuming the 90 days trading horizon Compound is expected to generate 11.84 times less return on investment than Morpho. But when comparing it to its historical volatility, Compound is 15.61 times less risky than Morpho. It trades about 0.17 of its potential returns per unit of risk. Morpho is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Morpho on October 8, 2024 and sell it today you would earn a total of  336.00  from holding Morpho or generate 9.223372036854776E16% return on investment over 90 days.

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

Compound  vs.  Morpho

Compound

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compound are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Compound exhibited solid returns over the last few months and may actually be approaching a breakup point.

Morpho

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morpho are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Morpho sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compound and Morpho

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

The idea behind Compound and Morpho 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.