Correlation Between KEY and GAIA

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

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

Diversification Opportunities for KEY and GAIA

0.2

Correlation Coefficient

KEY  GAIA

Modest diversification

The 3 months correlation between KEY and GAIA is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding KEY and GAIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAIA and KEY 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 KEY are associated (or correlated) with GAIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAIA has no effect on the direction of KEY i.e., KEY and GAIA go up and down completely randomly.

Pair Corralation between KEY and GAIA

Assuming the 90 days trading horizon KEY is expected to under-perform the GAIA. But the crypto coin apears to be less risky and, when comparing its historical volatility, KEY is 1.41 times less risky than GAIA. The crypto coin trades about -0.16 of its potential returns per unit of risk. The GAIA is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  0.32  in GAIA on August 30, 2024 and sell it today you would lose (0.12) from holding GAIA or give up 37.91% of portfolio value over 90 days.

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

KEY  vs.  GAIA

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.

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.

Pair Trading with KEY and GAIA

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

The idea behind KEY and GAIA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.