Correlation Between Curve DAO and Kusama
Can any of the company-specific risk be diversified away by investing in both Curve DAO and Kusama 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 Kusama 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 Kusama, you can compare the effects of market volatilities on Curve DAO and Kusama 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 Kusama. Check out your portfolio center. Please also check ongoing floating volatility patterns of Curve DAO and Kusama.
Diversification Opportunities for Curve DAO and Kusama
Poor diversification
The 3 months correlation between Curve and Kusama is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Curve DAO Token and Kusama in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kusama 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 Kusama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kusama has no effect on the direction of Curve DAO i.e., Curve DAO and Kusama go up and down completely randomly.
Pair Corralation between Curve DAO and Kusama
Assuming the 90 days trading horizon Curve DAO is expected to generate 2.0 times less return on investment than Kusama. But when comparing it to its historical volatility, Curve DAO Token is 1.27 times less risky than Kusama. It trades about 0.02 of its potential returns per unit of risk. Kusama is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,350 in Kusama on November 11, 2024 and sell it today you would lose (414.00) from holding Kusama or give up 17.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Curve DAO Token vs. Kusama
Performance |
| Timeline |
| Curve DAO Token |
| Kusama |
Curve DAO and Kusama Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Curve DAO and Kusama
The main advantage of trading using opposite Curve DAO and Kusama positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Curve DAO position performs unexpectedly, Kusama 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 Kusama will offset losses from the drop in Kusama's long position.The idea behind Curve DAO Token and Kusama 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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