Correlation Between Cosmos and KMD
Can any of the company-specific risk be diversified away by investing in both Cosmos and KMD 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 Cosmos and KMD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cosmos and KMD, you can compare the effects of market volatilities on Cosmos and KMD 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 Cosmos with a short position of KMD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cosmos and KMD.
Diversification Opportunities for Cosmos and KMD
Weak diversification
The 3 months correlation between Cosmos and KMD is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Cosmos and KMD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMD and Cosmos 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 Cosmos are associated (or correlated) with KMD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KMD has no effect on the direction of Cosmos i.e., Cosmos and KMD go up and down completely randomly.
Pair Corralation between Cosmos and KMD
Assuming the 90 days trading horizon Cosmos is expected to under-perform the KMD. But the crypto coin apears to be less risky and, when comparing its historical volatility, Cosmos is 2.29 times less risky than KMD. The crypto coin trades about -0.28 of its potential returns per unit of risk. The KMD is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 40.00 in KMD on January 25, 2024 and sell it today you would earn a total of 5.00 from holding KMD or generate 12.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cosmos vs. KMD
Performance |
| Timeline |
| Cosmos |
| KMD |
Cosmos and KMD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cosmos and KMD
The main advantage of trading using opposite Cosmos and KMD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cosmos position performs unexpectedly, KMD 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 KMD will offset losses from the drop in KMD's long position.The idea behind Cosmos and KMD 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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