Correlation Between Decentraland and BORA

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

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

Diversification Opportunities for Decentraland and BORA

0.97

Correlation Coefficient

Decentraland  BORA

Almost no diversification

The 3 months correlation between Decentraland and BORA is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Decentraland and BORA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BORA and Decentraland 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 Decentraland are associated (or correlated) with BORA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BORA has no effect on the direction of Decentraland i.e., Decentraland and BORA go up and down completely randomly.

Pair Corralation between Decentraland and BORA

Assuming the 90 days trading horizon Decentraland is expected to generate 1.24 times more return on investment than BORA. However, Decentraland is 1.24 times more volatile than BORA. It trades about 0.27 of its potential returns per unit of risk. BORA is currently generating about 0.21 per unit of risk. If you would invest  26.00  in Decentraland on September 3, 2024 and sell it today you would earn a total of  45.00  from holding Decentraland or generate 173.08% return on investment over 90 days.

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

Decentraland  vs.  BORA

Decentraland

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Decentraland are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Decentraland exhibited solid returns over the last few months and may actually be approaching a breakup point.

BORA

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BORA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, BORA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Decentraland and BORA

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

The idea behind Decentraland and BORA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.