Correlation Between Decred and AE
Can any of the company-specific risk be diversified away by investing in both Decred and AE 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 Decred and AE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Decred and AE, you can compare the effects of market volatilities on Decred and AE 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 Decred with a short position of AE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Decred and AE.
Diversification Opportunities for Decred and AE
Very weak diversification
The 3 months correlation between Decred and AE is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Decred and AE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AE and Decred 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 Decred are associated (or correlated) with AE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AE has no effect on the direction of Decred i.e., Decred and AE go up and down completely randomly.
Pair Corralation between Decred and AE
Assuming the 90 days trading horizon Decred is expected to generate 1.55 times less return on investment than AE. But when comparing it to its historical volatility, Decred is 2.1 times less risky than AE. It trades about 0.18 of its potential returns per unit of risk. AE is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 2.63 in AE on August 28, 2024 and sell it today you would earn a total of 1.00 from holding AE or generate 38.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Decred vs. AE
Performance |
| Timeline |
| Decred |
| AE |
Decred and AE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Decred and AE
The main advantage of trading using opposite Decred and AE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Decred position performs unexpectedly, AE 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 AE will offset losses from the drop in AE's long position.The idea behind Decred and AE 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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