Correlation Between EM and Automata
Can any of the company-specific risk be diversified away by investing in both EM and Automata 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 EM and Automata into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EM and Automata, you can compare the effects of market volatilities on EM and Automata 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 EM with a short position of Automata. Check out your portfolio center. Please also check ongoing floating volatility patterns of EM and Automata.
Diversification Opportunities for EM and Automata
Significant diversification
The 3 months correlation between EM and Automata is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding EM and Automata in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automata and EM 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 EM are associated (or correlated) with Automata. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automata has no effect on the direction of EM i.e., EM and Automata go up and down completely randomly.
Pair Corralation between EM and Automata
Assuming the 90 days horizon EM is expected to under-perform the Automata. But the crypto coin apears to be less risky and, when comparing its historical volatility, EM is 4.23 times less risky than Automata. The crypto coin trades about -0.11 of its potential returns per unit of risk. The Automata is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 22.00 in Automata on February 7, 2024 and sell it today you would lose (2.00) from holding Automata or give up 9.09% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 95.45% |
Values | Daily Returns |
EM vs. Automata
Performance |
Timeline |
EM |
Automata |
EM and Automata Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with EM and Automata
The main advantage of trading using opposite EM and Automata positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EM position performs unexpectedly, Automata 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 Automata will offset losses from the drop in Automata's long position.The idea behind EM and Automata 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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