Correlation Between DGB and CHP

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

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

Diversification Opportunities for DGB and CHP

0.87

Correlation Coefficient

DGB  CHP

Very poor diversification

The 3 months correlation between DGB and CHP is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding DGB and CHP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHP and DGB 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 DGB are associated (or correlated) with CHP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHP has no effect on the direction of DGB i.e., DGB and CHP go up and down completely randomly.

Pair Corralation between DGB and CHP

Assuming the 90 days trading horizon DGB is expected to under-perform the CHP. In addition to that, DGB is 1.05 times more volatile than CHP. It trades about -0.28 of its total potential returns per unit of risk. CHP is currently generating about -0.2 per unit of volatility. If you would invest  0.00  in CHP on November 27, 2024 and sell it today you would lose  0.00  from holding CHP or give up 19.35% of portfolio value over 90 days.

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

DGB  vs.  CHP

DGB

Risk-Adjusted Performance

Very Weak

Over the last 90 days DGB 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 DGB shareholders.

CHP

Risk-Adjusted Performance

Very Weak

Over the last 90 days CHP 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 March 2025. The latest tumult may also be a sign of longer-term up-swing for CHP shareholders.

Pair Trading with DGB and CHP

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

The idea behind DGB and CHP 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.