Correlation Between Decred and BCD
Can any of the company-specific risk be diversified away by investing in both Decred and BCD 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 BCD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Decred and BCD, you can compare the effects of market volatilities on Decred and BCD 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 BCD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Decred and BCD.
Diversification Opportunities for Decred and BCD
Very weak diversification
The 3 months correlation between Decred and BCD is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Decred and BCD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCD 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 BCD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCD has no effect on the direction of Decred i.e., Decred and BCD go up and down completely randomly.
Pair Corralation between Decred and BCD
Assuming the 90 days trading horizon Decred is expected to generate 1.08 times less return on investment than BCD. But when comparing it to its historical volatility, Decred is 2.53 times less risky than BCD. It trades about 0.18 of its potential returns per unit of risk. BCD is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 6.72 in BCD on August 28, 2024 and sell it today you would earn a total of 0.94 from holding BCD or generate 13.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Decred vs. BCD
Performance |
| Timeline |
| Decred |
| BCD |
Decred and BCD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Decred and BCD
The main advantage of trading using opposite Decred and BCD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Decred position performs unexpectedly, BCD 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 BCD will offset losses from the drop in BCD's long position.The idea behind Decred and BCD 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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