Correlation Between Cronos and DGD
Can any of the company-specific risk be diversified away by investing in both Cronos and DGD 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 Cronos and DGD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cronos and DGD, you can compare the effects of market volatilities on Cronos and DGD 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 Cronos with a short position of DGD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cronos and DGD.
Diversification Opportunities for Cronos and DGD
Almost no diversification
The 3 months correlation between Cronos and DGD is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Cronos and DGD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DGD and Cronos 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 Cronos are associated (or correlated) with DGD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DGD has no effect on the direction of Cronos i.e., Cronos and DGD go up and down completely randomly.
Pair Corralation between Cronos and DGD
Assuming the 90 days trading horizon Cronos is expected to generate 4.34 times more return on investment than DGD. However, Cronos is 4.34 times more volatile than DGD. It trades about 0.27 of its potential returns per unit of risk. DGD is currently generating about 0.31 per unit of risk. If you would invest 7.56 in Cronos on August 30, 2024 and sell it today you would earn a total of 10.44 from holding Cronos or generate 138.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cronos vs. DGD
Performance |
| Timeline |
| Cronos |
| DGD |
Cronos and DGD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cronos and DGD
The main advantage of trading using opposite Cronos and DGD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cronos position performs unexpectedly, DGD 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 DGD will offset losses from the drop in DGD's long position.The idea behind Cronos and DGD 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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