Correlation Between Decred and COV

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

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

Diversification Opportunities for Decred and COV

0.81

Correlation Coefficient

Decred  COV

Very poor diversification

The 3 months correlation between Decred and COV is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Decred and COV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COV and Decred 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 Decred are associated (or correlated) with COV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COV has no effect on the direction of Decred i.e., Decred and COV go up and down completely randomly.

Pair Corralation between Decred and COV

Assuming the 90 days trading horizon Decred is expected to generate 0.99 times more return on investment than COV. However, Decred is 1.01 times less risky than COV. It trades about 0.23 of its potential returns per unit of risk. COV is currently generating about 0.22 per unit of risk. If you would invest  1,139  in Decred on September 3, 2024 and sell it today you would earn a total of  748.00  from holding Decred or generate 65.67% return on investment over 90 days.

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

Decred  vs.  COV

Decred

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Decred are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Decred exhibited solid returns over the last few months and may actually be approaching a breakup point.

COV

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with Decred and COV

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

The idea behind Decred and COV 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.