Correlation Between CEL and DATA

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

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

Diversification Opportunities for CEL and DATA

0.66

Correlation Coefficient

CEL  DATA

Poor diversification

The 3 months correlation between CEL and DATA is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding CEL and DATA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DATA and CEL 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 CEL are associated (or correlated) with DATA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DATA has no effect on the direction of CEL i.e., CEL and DATA go up and down completely randomly.

Pair Corralation between CEL and DATA

Assuming the 90 days trading horizon CEL is expected to under-perform the DATA. But the crypto coin apears to be less risky and, when comparing its historical volatility, CEL is 1.06 times less risky than DATA. The crypto coin trades about -0.34 of its potential returns per unit of risk. The DATA is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7.17  in DATA on January 30, 2024 and sell it today you would lose (0.91) from holding DATA or give up 12.69% of portfolio value over 90 days.

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

CEL  vs.  DATA

CEL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CEL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady essential indicators, CEL may actually be approaching a critical reversion point that can send shares even higher in May 2024.

DATA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 7 (%) 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.

Pair Trading with CEL and DATA

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

The idea behind CEL and DATA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.