Correlation Between Algorand and CHESS

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

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

Diversification Opportunities for Algorand and CHESS

0.92

Correlation Coefficient

Algorand  CHESS

Almost no diversification

The 3 months correlation between Algorand and CHESS is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Algorand and CHESS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHESS and Algorand 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 Algorand are associated (or correlated) with CHESS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHESS has no effect on the direction of Algorand i.e., Algorand and CHESS go up and down completely randomly.

Pair Corralation between Algorand and CHESS

Assuming the 90 days trading horizon Algorand is expected to generate 0.98 times more return on investment than CHESS. However, Algorand is 1.02 times less risky than CHESS. It trades about 0.03 of its potential returns per unit of risk. CHESS is currently generating about 0.01 per unit of risk. If you would invest  18.00  in Algorand on February 13, 2024 and sell it today you would earn a total of  0.00  from holding Algorand or generate 0.0% return on investment over 90 days.

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

Algorand  vs.  CHESS

Algorand

Risk-Adjusted Performance

2 of 100

Weak

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

CHESS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHESS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CHESS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Algorand and CHESS

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

The idea behind Algorand and CHESS 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.