Correlation Between GAIA and WGRT

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

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

Diversification Opportunities for GAIA and WGRT

0.53

Correlation Coefficient

GAIA  WGRT

Very weak diversification

The 3 months correlation between GAIA and WGRT is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding GAIA and WGRT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WGRT 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 WGRT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WGRT has no effect on the direction of GAIA i.e., GAIA and WGRT go up and down completely randomly.

Pair Corralation between GAIA and WGRT

Assuming the 90 days trading horizon GAIA is expected to under-perform the WGRT. But the crypto coin apears to be less risky and, when comparing its historical volatility, GAIA is 4.48 times less risky than WGRT. The crypto coin trades about -0.03 of its potential returns per unit of risk. The WGRT is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.25  in WGRT on September 1, 2024 and sell it today you would lose (1.19) from holding WGRT or give up 95.06% of portfolio value over 90 days.

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

GAIA  vs.  WGRT

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.

WGRT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WGRT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady fundamental indicators, WGRT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GAIA and WGRT

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

The idea behind GAIA and WGRT 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.