Correlation Between SMART and EigenLayer

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

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

Diversification Opportunities for SMART and EigenLayer

0.48

Correlation Coefficient

SMART  EigenLayer

Very weak diversification

The 3 months correlation between SMART and EigenLayer is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding SMART and EigenLayer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EigenLayer and SMART 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 SMART are associated (or correlated) with EigenLayer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EigenLayer has no effect on the direction of SMART i.e., SMART and EigenLayer go up and down completely randomly.

Pair Corralation between SMART and EigenLayer

Assuming the 90 days trading horizon SMART is expected to generate 0.78 times more return on investment than EigenLayer. However, SMART is 1.28 times less risky than EigenLayer. It trades about -0.1 of its potential returns per unit of risk. EigenLayer is currently generating about -0.11 per unit of risk. If you would invest  0.00  in SMART on October 26, 2024 and sell it today you would lose  0.00  from holding SMART or give up 13.16% of portfolio value over 90 days.

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

SMART  vs.  EigenLayer

SMART

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SMART are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SMART exhibited solid returns over the last few months and may actually be approaching a breakup point.

EigenLayer

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EigenLayer are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, EigenLayer exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMART and EigenLayer

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

The idea behind SMART and EigenLayer 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.