Correlation Between DATA and Shrapnel

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

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

Diversification Opportunities for DATA and Shrapnel

0.3

Correlation Coefficient

DATA  Shrapnel

Weak diversification

The 3 months correlation between DATA and Shrapnel is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding DATA and Shrapnel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shrapnel and DATA 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 DATA are associated (or correlated) with Shrapnel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shrapnel has no effect on the direction of DATA i.e., DATA and Shrapnel go up and down completely randomly.

Pair Corralation between DATA and Shrapnel

Assuming the 90 days trading horizon DATA is expected to under-perform the Shrapnel. But the crypto coin apears to be less risky and, when comparing its historical volatility, DATA is 19.99 times less risky than Shrapnel. The crypto coin trades about -0.09 of its potential returns per unit of risk. The Shrapnel is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Shrapnel on February 7, 2024 and sell it today you would earn a total of  14.00  from holding Shrapnel or generate 9.223372036854776E16% return on investment over 90 days.

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

DATA  vs.  Shrapnel

DATA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DATA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Shrapnel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shrapnel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Shrapnel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DATA and Shrapnel

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

The idea behind DATA and Shrapnel 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.