Correlation Between EGold and THC

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

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

Diversification Opportunities for EGold and THC

0.15

Correlation Coefficient

EGold  THC

Average diversification

The 3 months correlation between EGold and THC is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding eGold and THC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THC 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 THC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THC has no effect on the direction of EGold i.e., EGold and THC go up and down completely randomly.

Pair Corralation between EGold and THC

Assuming the 90 days trading horizon eGold is expected to under-perform the THC. But the crypto coin apears to be less risky and, when comparing its historical volatility, eGold is 4.03 times less risky than THC. The crypto coin trades about -0.24 of its potential returns per unit of risk. The THC is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  0.28  in THC on January 29, 2024 and sell it today you would lose (0.10) from holding THC or give up 34.43% of portfolio value over 90 days.

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

eGold  vs.  THC

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.

THC

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with EGold and THC

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

The idea behind eGold and THC 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.