Correlation Between XWC and Decred
Can any of the company-specific risk be diversified away by investing in both XWC and Decred 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 XWC and Decred into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between XWC and Decred, you can compare the effects of market volatilities on XWC and Decred 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 XWC with a short position of Decred. Check out your portfolio center. Please also check ongoing floating volatility patterns of XWC and Decred.
Diversification Opportunities for XWC and Decred
Very poor diversification
The 3 months correlation between XWC and Decred is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding XWC and Decred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decred and XWC 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 XWC are associated (or correlated) with Decred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decred has no effect on the direction of XWC i.e., XWC and Decred go up and down completely randomly.
Pair Corralation between XWC and Decred
Assuming the 90 days trading horizon XWC is expected to generate 0.93 times more return on investment than Decred. However, XWC is 1.07 times less risky than Decred. It trades about 0.26 of its potential returns per unit of risk. Decred is currently generating about 0.16 per unit of risk. If you would invest 2.01 in XWC on August 31, 2024 and sell it today you would earn a total of 1.37 from holding XWC or generate 68.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
XWC vs. Decred
Performance |
| Timeline |
| XWC |
| Decred |
XWC and Decred Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with XWC and Decred
The main advantage of trading using opposite XWC and Decred positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XWC position performs unexpectedly, Decred 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 Decred will offset losses from the drop in Decred's long position.The idea behind XWC and Decred 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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