Correlation Between Near and Cronos

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

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

Diversification Opportunities for Near and Cronos

0.82

Correlation Coefficient

Near  Cronos

Very poor diversification

The 3 months correlation between Near and Cronos is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Near and Cronos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cronos and Near 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 Near are associated (or correlated) with Cronos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cronos has no effect on the direction of Near i.e., Near and Cronos go up and down completely randomly.

Pair Corralation between Near and Cronos

Assuming the 90 days trading horizon Near is expected to generate 1.67 times less return on investment than Cronos. But when comparing it to its historical volatility, Near is 2.17 times less risky than Cronos. It trades about 0.21 of its potential returns per unit of risk. Cronos is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  7.87  in Cronos on September 1, 2024 and sell it today you would earn a total of  11.13  from holding Cronos or generate 141.42% return on investment over 90 days.

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

Near  vs.  Cronos

Near

Risk-Adjusted Performance

16 of 100

Solid

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

Cronos

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Near and Cronos

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

The idea behind Near and Cronos 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.