Correlation Between Polkadot and NEBL
Can any of the company-specific risk be diversified away by investing in both Polkadot and NEBL 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 Polkadot and NEBL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Polkadot and NEBL, you can compare the effects of market volatilities on Polkadot and NEBL 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 Polkadot with a short position of NEBL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Polkadot and NEBL.
Diversification Opportunities for Polkadot and NEBL
Very weak diversification
The 3 months correlation between Polkadot and NEBL is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Polkadot and NEBL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEBL and Polkadot 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 Polkadot are associated (or correlated) with NEBL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEBL has no effect on the direction of Polkadot i.e., Polkadot and NEBL go up and down completely randomly.
Pair Corralation between Polkadot and NEBL
Assuming the 90 days trading horizon Polkadot is expected to generate 12.79 times less return on investment than NEBL. But when comparing it to its historical volatility, Polkadot is 27.18 times less risky than NEBL. It trades about 0.49 of its potential returns per unit of risk. NEBL is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 0.25 in NEBL on August 31, 2024 and sell it today you would earn a total of 17.75 from holding NEBL or generate 6978.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Polkadot vs. NEBL
Performance |
| Timeline |
| Polkadot |
| NEBL |
Polkadot and NEBL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Polkadot and NEBL
The main advantage of trading using opposite Polkadot and NEBL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polkadot position performs unexpectedly, NEBL 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 NEBL will offset losses from the drop in NEBL's long position.The idea behind Polkadot and NEBL 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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