Correlation Between Compound Governance and SXP
Can any of the company-specific risk be diversified away by investing in both Compound Governance and SXP 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 SXP 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 SXP, you can compare the effects of market volatilities on Compound Governance and SXP 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 SXP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compound Governance and SXP.
Diversification Opportunities for Compound Governance and SXP
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Compound and SXP is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Compound Governance Token and SXP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SXP 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 SXP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SXP has no effect on the direction of Compound Governance i.e., Compound Governance and SXP go up and down completely randomly.
Pair Corralation between Compound Governance and SXP
Assuming the 90 days trading horizon Compound Governance Token is expected to under-perform the SXP. But the crypto coin apears to be less risky and, when comparing its historical volatility, Compound Governance Token is 1.21 times less risky than SXP. The crypto coin trades about -0.22 of its potential returns per unit of risk. The SXP is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest 48.00 in SXP on January 26, 2024 and sell it today you would lose (12.00) from holding SXP or give up 25.0% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Compound Governance Token vs. SXP
Performance |
Timeline |
Compound Governance Token |
SXP |
Compound Governance and SXP Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Compound Governance and SXP
The main advantage of trading using opposite Compound Governance and SXP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compound Governance position performs unexpectedly, SXP 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 SXP will offset losses from the drop in SXP's long position.Compound Governance vs. Solana | Compound Governance vs. XRP | Compound Governance vs. Staked Ether | Compound Governance vs. The Open Network |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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