Correlation Between SLS and Decred

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

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

Diversification Opportunities for SLS and Decred

0.81

Correlation Coefficient

SLS  Decred

Very poor diversification

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

Pair Corralation between SLS and Decred

Assuming the 90 days trading horizon SLS is expected to generate 0.93 times more return on investment than Decred. However, SLS is 1.07 times less risky than Decred. It trades about 0.25 of its potential returns per unit of risk. Decred is currently generating about 0.2 per unit of risk. If you would invest  725.00  in SLS on September 3, 2024 and sell it today you would earn a total of  471.00  from holding SLS or generate 64.97% return on investment over 90 days.

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

SLS  vs.  Decred

SLS

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SLS are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SLS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Decred

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Decred are ranked lower than 16 (%) 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.

Pair Trading with SLS and Decred

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

The idea behind SLS and Decred 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.