Correlation Between Drift Protocol and Frax

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

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

Diversification Opportunities for Drift Protocol and Frax

0.22

Correlation Coefficient

Drift Protocol  Frax

Modest diversification

The 3 months correlation between Drift and Frax is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Drift protocol and Frax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frax and Drift Protocol 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 Drift protocol are associated (or correlated) with Frax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frax has no effect on the direction of Drift Protocol i.e., Drift Protocol and Frax go up and down completely randomly.

Pair Corralation between Drift Protocol and Frax

Assuming the 90 days trading horizon Drift protocol is expected to generate 12.11 times more return on investment than Frax. However, Drift Protocol is 12.11 times more volatile than Frax. It trades about 0.13 of its potential returns per unit of risk. Frax is currently generating about 0.03 per unit of risk. If you would invest  48.00  in Drift protocol on September 1, 2024 and sell it today you would earn a total of  94.00  from holding Drift protocol or generate 195.83% return on investment over 90 days.

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

Drift protocol  vs.  Frax

Drift protocol

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Drift protocol are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Drift Protocol exhibited solid returns over the last few months and may actually be approaching a breakup point.

Frax

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Frax are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Frax is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Drift Protocol and Frax

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

The idea behind Drift protocol and Frax 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.