Correlation Between Terra and TRON
Can any of the company-specific risk be diversified away by investing in both Terra and TRON 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 Terra and TRON into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Terra and TRON, you can compare the effects of market volatilities on Terra and TRON 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 Terra with a short position of TRON. Check out your portfolio center. Please also check ongoing floating volatility patterns of Terra and TRON.
Diversification Opportunities for Terra and TRON
Poor diversification
The 3 months correlation between Terra and TRON is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Terra and TRON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRON and Terra 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 Terra are associated (or correlated) with TRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRON has no effect on the direction of Terra i.e., Terra and TRON go up and down completely randomly.
Pair Corralation between Terra and TRON
Assuming the 90 days trading horizon Terra is expected to generate 1.48 times more return on investment than TRON. However, Terra is 1.48 times more volatile than TRON. It trades about 0.22 of its potential returns per unit of risk. TRON is currently generating about 0.16 per unit of risk. If you would invest 35.00 in Terra on August 30, 2024 and sell it today you would earn a total of 14.00 from holding Terra or generate 40.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Terra vs. TRON
Performance |
| Timeline |
| Terra |
| TRON |
Terra and TRON Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Terra and TRON
The main advantage of trading using opposite Terra and TRON positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Terra position performs unexpectedly, TRON 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 TRON will offset losses from the drop in TRON's long position.The idea behind Terra and TRON 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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