Correlation Between EM and SPACE
Can any of the company-specific risk be diversified away by investing in both EM and SPACE 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 EM and SPACE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EM and SPACE, you can compare the effects of market volatilities on EM and SPACE 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 EM with a short position of SPACE. Check out your portfolio center. Please also check ongoing floating volatility patterns of EM and SPACE.
Diversification Opportunities for EM and SPACE
Pay attention - limited upside
The 3 months correlation between EM and SPACE is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and SPACE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPACE and EM 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 EM are associated (or correlated) with SPACE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPACE has no effect on the direction of EM i.e., EM and SPACE go up and down completely randomly.
Pair Corralation between EM and SPACE
Assuming the 90 days horizon EM is expected to under-perform the SPACE. But the crypto coin apears to be less risky and, when comparing its historical volatility, EM is 16.66 times less risky than SPACE. The crypto coin trades about -0.05 of its potential returns per unit of risk. The SPACE is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 3.19 in SPACE on September 19, 2024 and sell it today you would earn a total of 44.81 from holding SPACE or generate 1404.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 96.46% |
| Values | Daily Returns |
EM vs. SPACE
Performance |
| Timeline |
| EM |
| SPACE |
EM and SPACE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EM and SPACE
The main advantage of trading using opposite EM and SPACE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EM position performs unexpectedly, SPACE 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 SPACE will offset losses from the drop in SPACE's long position.The idea behind EM and SPACE 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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