Correlation Between Kava and BounceBit
Can any of the company-specific risk be diversified away by investing in both Kava and BounceBit 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 Kava and BounceBit into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kava and BounceBit, you can compare the effects of market volatilities on Kava and BounceBit 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 Kava with a short position of BounceBit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kava and BounceBit.
Diversification Opportunities for Kava and BounceBit
Very weak diversification
The 3 months correlation between Kava and BounceBit is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Kava and BounceBit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BounceBit and Kava 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 Kava are associated (or correlated) with BounceBit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BounceBit has no effect on the direction of Kava i.e., Kava and BounceBit go up and down completely randomly.
Pair Corralation between Kava and BounceBit
Assuming the 90 days trading horizon Kava is expected to generate 0.85 times more return on investment than BounceBit. However, Kava is 1.17 times less risky than BounceBit. It trades about 0.37 of its potential returns per unit of risk. BounceBit is currently generating about 0.13 per unit of risk. If you would invest 32.00 in Kava on August 25, 2024 and sell it today you would earn a total of 16.00 from holding Kava or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kava vs. BounceBit
Performance |
| Timeline |
| Kava |
| BounceBit |
Kava and BounceBit Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kava and BounceBit
The main advantage of trading using opposite Kava and BounceBit positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kava position performs unexpectedly, BounceBit 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 BounceBit will offset losses from the drop in BounceBit's long position.The idea behind Kava and BounceBit 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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