Correlation Between Curve DAO and CMT
Can any of the company-specific risk be diversified away by investing in both Curve DAO and CMT 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 Curve DAO and CMT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Curve DAO Token and CMT, you can compare the effects of market volatilities on Curve DAO and CMT 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 Curve DAO with a short position of CMT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Curve DAO and CMT.
Diversification Opportunities for Curve DAO and CMT
Poor diversification
The 3 months correlation between Curve and CMT is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Curve DAO Token and CMT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMT and Curve DAO 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 Curve DAO Token are associated (or correlated) with CMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMT has no effect on the direction of Curve DAO i.e., Curve DAO and CMT go up and down completely randomly.
Pair Corralation between Curve DAO and CMT
Assuming the 90 days trading horizon Curve DAO Token is expected to generate 1.9 times more return on investment than CMT. However, Curve DAO is 1.9 times more volatile than CMT. It trades about 0.42 of its potential returns per unit of risk. CMT is currently generating about 0.42 per unit of risk. If you would invest 24.00 in Curve DAO Token on August 25, 2024 and sell it today you would earn a total of 24.00 from holding Curve DAO Token or generate 100.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Curve DAO Token vs. CMT
Performance |
| Timeline |
| Curve DAO Token |
| CMT |
Curve DAO and CMT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Curve DAO and CMT
The main advantage of trading using opposite Curve DAO and CMT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Curve DAO position performs unexpectedly, CMT 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 CMT will offset losses from the drop in CMT's long position.The idea behind Curve DAO Token and CMT 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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