Correlation Between Kusama and EM

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

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

Diversification Opportunities for Kusama and EM

0.73

Correlation Coefficient

Kusama  EM

Poor diversification

The 3 months correlation between Kusama and EM is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Kusama and EM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EM and Kusama 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 Kusama are associated (or correlated) with EM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EM has no effect on the direction of Kusama i.e., Kusama and EM go up and down completely randomly.

Pair Corralation between Kusama and EM

Assuming the 90 days trading horizon Kusama is expected to under-perform the EM. In addition to that, Kusama is 2.19 times more volatile than EM. It trades about -0.34 of its total potential returns per unit of risk. EM is currently generating about -0.15 per unit of volatility. If you would invest  0.08  in EM on January 29, 2024 and sell it today you would lose (0.01) from holding EM or give up 9.57% of portfolio value over 90 days.

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

Kusama  vs.  EM

Kusama

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kusama 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 primary 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 Kusama shareholders.

EM

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Kusama and EM

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

The idea behind Kusama and EM 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.