Correlation Between DATA and Polkadot

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

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

Diversification Opportunities for DATA and Polkadot

0.86

Correlation Coefficient

DATA  Polkadot

Very poor diversification

The 3 months correlation between DATA and Polkadot is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding DATA and Polkadot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polkadot and DATA 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 DATA are associated (or correlated) with Polkadot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polkadot has no effect on the direction of DATA i.e., DATA and Polkadot go up and down completely randomly.

Pair Corralation between DATA and Polkadot

Assuming the 90 days trading horizon DATA is expected to generate 1.52 times more return on investment than Polkadot. However, DATA is 1.52 times more volatile than Polkadot. It trades about -0.04 of its potential returns per unit of risk. Polkadot is currently generating about -0.25 per unit of risk. If you would invest  7.77  in DATA on January 25, 2024 and sell it today you would lose (0.90) from holding DATA or give up 11.58% of portfolio value over 90 days.

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

DATA  vs.  Polkadot

DATA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DATA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Polkadot

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Polkadot are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Polkadot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DATA and Polkadot

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

The idea behind DATA and Polkadot 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.