Correlation Between Solana and ME

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

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

Diversification Opportunities for Solana and ME

0.87

Correlation Coefficient

Solana  ME

Very poor diversification

The 3 months correlation between Solana and ME is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Solana and ME in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ME and Solana 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 Solana are associated (or correlated) with ME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ME has no effect on the direction of Solana i.e., Solana and ME go up and down completely randomly.

Pair Corralation between Solana and ME

Assuming the 90 days trading horizon Solana is expected to under-perform the ME. In addition to that, Solana is 1.74 times more volatile than ME. It trades about -0.3 of its total potential returns per unit of risk. ME is currently generating about -0.15 per unit of volatility. If you would invest  0.07  in ME on January 29, 2024 and sell it today you would lose (0.01) from holding ME or give up 8.91% of portfolio value over 90 days.

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

Solana  vs.  ME

Solana

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solana are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Solana exhibited solid returns over the last few months and may actually be approaching a breakup point.

ME

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ME are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, ME exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solana and ME

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

The idea behind Solana and ME 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.