Correlation Between Waves and XVG

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

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

Diversification Opportunities for Waves and XVG

0.89

Correlation Coefficient

Waves  XVG

Very poor diversification

The 3 months correlation between Waves and XVG is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Waves and XVG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XVG and Waves 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 Waves are associated (or correlated) with XVG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XVG has no effect on the direction of Waves i.e., Waves and XVG go up and down completely randomly.

Pair Corralation between Waves and XVG

Assuming the 90 days trading horizon Waves is expected to generate 1.06 times less return on investment than XVG. But when comparing it to its historical volatility, Waves is 1.74 times less risky than XVG. It trades about 0.26 of its potential returns per unit of risk. XVG is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  0.34  in XVG on September 2, 2024 and sell it today you would earn a total of  0.36  from holding XVG or generate 104.8% return on investment over 90 days.

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

Waves  vs.  XVG

Waves

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Waves are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Waves exhibited solid returns over the last few months and may actually be approaching a breakup point.

XVG

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Waves and XVG

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

The idea behind Waves and XVG 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.