Correlation Between GAIA and EM

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

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

Diversification Opportunities for GAIA and EM

0.0

Correlation Coefficient

GAIA  EM

Pay attention - limited upside

The 3 months correlation between GAIA and EM is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding GAIA and EM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EM and GAIA 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 GAIA are associated (or correlated) with EM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EM has no effect on the direction of GAIA i.e., GAIA and EM go up and down completely randomly.

Pair Corralation between GAIA and EM

Assuming the 90 days trading horizon GAIA is expected to generate 0.82 times more return on investment than EM. However, GAIA is 1.22 times less risky than EM. It trades about -0.07 of its potential returns per unit of risk. EM is currently generating about -0.08 per unit of risk. If you would invest  0.50  in GAIA on September 1, 2024 and sell it today you would lose (0.30) from holding GAIA or give up 60.02% of portfolio value over 90 days.

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

GAIA  vs.  EM

GAIA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GAIA 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 fundamental 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 GAIA shareholders.

EM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, EM is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GAIA and EM

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

The idea behind GAIA and EM 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.