Correlation Between DKargo and LRN

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

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

Diversification Opportunities for DKargo and LRN

0.6

Correlation Coefficient

DKargo  LRN

Poor diversification

The 3 months correlation between DKargo and LRN is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding dKargo and LRN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LRN and DKargo 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 dKargo are associated (or correlated) with LRN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LRN has no effect on the direction of DKargo i.e., DKargo and LRN go up and down completely randomly.

Pair Corralation between DKargo and LRN

Assuming the 90 days trading horizon dKargo is expected to under-perform the LRN. But the crypto coin apears to be less risky and, when comparing its historical volatility, dKargo is 1.93 times less risky than LRN. The crypto coin trades about -0.1 of its potential returns per unit of risk. The LRN is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  0.59  in LRN on January 30, 2024 and sell it today you would lose (0.10) from holding LRN or give up 16.87% of portfolio value over 90 days.

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

dKargo  vs.  LRN

dKargo

Risk-Adjusted Performance

2 of 100

Weak

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

LRN

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LRN has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for LRN shareholders.

Pair Trading with DKargo and LRN

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

The idea behind dKargo and LRN 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.