Correlation Between DATA and KEY

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

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

Diversification Opportunities for DATA and KEY

0.04

Correlation Coefficient

DATA  KEY

Significant diversification

The 3 months correlation between DATA and KEY is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding DATA and KEY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEY and DATA 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 DATA are associated (or correlated) with KEY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEY has no effect on the direction of DATA i.e., DATA and KEY go up and down completely randomly.

Pair Corralation between DATA and KEY

Assuming the 90 days trading horizon DATA is expected to generate 0.76 times more return on investment than KEY. However, DATA is 1.32 times less risky than KEY. It trades about 0.1 of its potential returns per unit of risk. KEY is currently generating about -0.14 per unit of risk. If you would invest  3.81  in DATA on September 1, 2024 and sell it today you would earn a total of  1.17  from holding DATA or generate 30.71% return on investment over 90 days.

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

DATA  vs.  KEY

DATA

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DATA exhibited solid returns over the last few months and may actually be approaching a breakup point.

KEY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KEY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for KEY shareholders.

Pair Trading with DATA and KEY

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

The idea behind DATA and KEY 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.