Correlation Between SMART and DigiByte
Can any of the company-specific risk be diversified away by investing in both SMART and DigiByte 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 SMART and DigiByte into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SMART and DigiByte, you can compare the effects of market volatilities on SMART and DigiByte 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 SMART with a short position of DigiByte. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMART and DigiByte.
Diversification Opportunities for SMART and DigiByte
Poor diversification
The 3 months correlation between SMART and DigiByte is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding SMART and DigiByte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DigiByte and SMART 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 SMART are associated (or correlated) with DigiByte. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DigiByte has no effect on the direction of SMART i.e., SMART and DigiByte go up and down completely randomly.
Pair Corralation between SMART and DigiByte
Assuming the 90 days trading horizon SMART is expected to generate 2.24 times more return on investment than DigiByte. However, SMART is 2.24 times more volatile than DigiByte. It trades about 0.05 of its potential returns per unit of risk. DigiByte is currently generating about 0.02 per unit of risk. If you would invest 0.00 in SMART on August 26, 2024 and sell it today you would lose 0.00 from holding SMART or give up 10.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SMART vs. DigiByte
Performance |
| Timeline |
| SMART |
| DigiByte |
SMART and DigiByte Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SMART and DigiByte
The main advantage of trading using opposite SMART and DigiByte positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMART position performs unexpectedly, DigiByte 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 DigiByte will offset losses from the drop in DigiByte's long position.The idea behind SMART and DigiByte 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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