Correlation Between DigiByte and Compound Governance

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

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

Diversification Opportunities for DigiByte and Compound Governance

0.77

Correlation Coefficient

DigiByte  Compound Governance

Poor diversification

The 3 months correlation between DigiByte and Compound is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding DigiByte and Compound Governance Token in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compound Governance Token and DigiByte 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 DigiByte are associated (or correlated) with Compound Governance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compound Governance Token has no effect on the direction of DigiByte i.e., DigiByte and Compound Governance go up and down completely randomly.

Pair Corralation between DigiByte and Compound Governance

Assuming the 90 days trading horizon DigiByte is expected to generate 1.05 times more return on investment than Compound Governance. However, DigiByte is 1.05 times more volatile than Compound Governance Token. It trades about -0.04 of its potential returns per unit of risk. Compound Governance Token is currently generating about -0.21 per unit of risk. If you would invest  1.38  in DigiByte on January 20, 2024 and sell it today you would lose (0.12) from holding DigiByte or give up 8.7% of portfolio value over 90 days.

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

DigiByte  vs.  Compound Governance Token

DigiByte

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DigiByte are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, DigiByte exhibited solid returns over the last few months and may actually be approaching a breakup point.

Compound Governance Token

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compound Governance Token are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Compound Governance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DigiByte and Compound Governance

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

The idea behind DigiByte and Compound Governance Token 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.