Correlation Between EGold and Decentraland

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

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

Diversification Opportunities for EGold and Decentraland

0.77

Correlation Coefficient

EGold  Decentraland

Poor diversification

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

Pair Corralation between EGold and Decentraland

Assuming the 90 days trading horizon eGold is expected to generate 0.88 times more return on investment than Decentraland. However, eGold is 1.14 times less risky than Decentraland. It trades about -0.26 of its potential returns per unit of risk. Decentraland is currently generating about -0.24 per unit of risk. If you would invest  5,904  in eGold on January 29, 2024 and sell it today you would lose (1,765) from holding eGold or give up 29.89% of portfolio value over 90 days.

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

eGold  vs.  Decentraland

eGold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days eGold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for eGold shareholders.

Decentraland

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Decentraland are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Decentraland may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with EGold and Decentraland

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

The idea behind eGold and Decentraland 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.