Correlation Between 0x and Chroma

Can any of the company-specific risk be diversified away by investing in both 0x and Chroma 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 0x and Chroma into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 0x and Chroma, you can compare the effects of market volatilities on 0x and Chroma 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 0x with a short position of Chroma. Check out your portfolio center. Please also check ongoing floating volatility patterns of 0x and Chroma.

Diversification Opportunities for 0x and Chroma

0.84

Correlation Coefficient

0x  Chroma

Very poor diversification

The 3 months correlation between 0x and Chroma is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding 0x and Chroma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chroma and 0x 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 0x are associated (or correlated) with Chroma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chroma has no effect on the direction of 0x i.e., 0x and Chroma go up and down completely randomly.

Pair Corralation between 0x and Chroma

Assuming the 90 days trading horizon 0x is expected to generate 1.03 times more return on investment than Chroma. However, 0x is 1.03 times more volatile than Chroma. It trades about 0.22 of its potential returns per unit of risk. Chroma is currently generating about 0.15 per unit of risk. If you would invest  28.00  in 0x on September 1, 2024 and sell it today you would earn a total of  30.00  from holding 0x or generate 107.14% return on investment over 90 days.

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

0x  vs.  Chroma

0x

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in 0x are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, 0x exhibited solid returns over the last few months and may actually be approaching a breakup point.

Chroma

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chroma are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Chroma exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 0x and Chroma

The main advantage of trading using opposite 0x and Chroma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 0x position performs unexpectedly, Chroma 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 Chroma will offset losses from the drop in Chroma's long position.

The idea behind 0x and Chroma 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.