Correlation Between ZEN and Decentraland

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

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

Diversification Opportunities for ZEN and Decentraland

0.91

Correlation Coefficient

ZEN  Decentraland

Almost no diversification

The 3 months correlation between ZEN and Decentraland is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding ZEN and Decentraland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decentraland and ZEN 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 ZEN 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 ZEN i.e., ZEN and Decentraland go up and down completely randomly.

Pair Corralation between ZEN and Decentraland

Assuming the 90 days trading horizon ZEN is expected to under-perform the Decentraland. But the crypto coin apears to be less risky and, when comparing its historical volatility, ZEN is 1.03 times less risky than Decentraland. The crypto coin trades about -0.34 of its potential returns per unit of risk. The Decentraland is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  66.00  in Decentraland on January 29, 2024 and sell it today you would lose (20.00) from holding Decentraland or give up 30.3% of portfolio value over 90 days.

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

ZEN  vs.  Decentraland

ZEN

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ZEN are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ZEN exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ZEN and Decentraland

The main advantage of trading using opposite ZEN and Decentraland positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ZEN 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 ZEN 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.