Correlation Between Compound Governance and Quant

Can any of the company-specific risk be diversified away by investing in both Compound Governance and Quant 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 Compound Governance and Quant into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Compound Governance Token and Quant, you can compare the effects of market volatilities on Compound Governance and Quant 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 Compound Governance with a short position of Quant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compound Governance and Quant.

Diversification Opportunities for Compound Governance and Quant

0.78

Correlation Coefficient

Compound Governance  Quant

Poor diversification

The 3 months correlation between Compound and Quant is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Compound Governance Token and Quant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quant and Compound Governance 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 Compound Governance Token are associated (or correlated) with Quant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quant has no effect on the direction of Compound Governance i.e., Compound Governance and Quant go up and down completely randomly.

Pair Corralation between Compound Governance and Quant

Assuming the 90 days trading horizon Compound Governance Token is expected to under-perform the Quant. In addition to that, Compound Governance is 1.2 times more volatile than Quant. It trades about -0.23 of its total potential returns per unit of risk. Quant is currently generating about -0.14 per unit of volatility. If you would invest  12,283  in Quant on January 19, 2024 and sell it today you would lose (2,040) from holding Quant or give up 16.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Compound Governance Token  vs.  Quant

Compound Governance Token

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compound Governance Token has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Compound Governance is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Quant

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Quant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Compound Governance and Quant

The main advantage of trading using opposite Compound Governance and Quant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compound Governance position performs unexpectedly, Quant 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 Quant will offset losses from the drop in Quant's long position.

The idea behind Compound Governance Token and Quant 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.