Correlation Between AE and Decred

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Can any of the company-specific risk be diversified away by investing in both AE and Decred 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 AE and Decred into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AE and Decred, you can compare the effects of market volatilities on AE and Decred 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 AE with a short position of Decred. Check out your portfolio center. Please also check ongoing floating volatility patterns of AE and Decred.

Diversification Opportunities for AE and Decred

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between AE and Decred is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding AE and Decred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decred and AE 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 AE are associated (or correlated) with Decred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decred has no effect on the direction of AE i.e., AE and Decred go up and down completely randomly.

Pair Corralation between AE and Decred

Assuming the 90 days horizon AE is expected to generate 0.62 times more return on investment than Decred. However, AE is 1.61 times less risky than Decred. It trades about -0.15 of its potential returns per unit of risk. Decred is currently generating about -0.21 per unit of risk. If you would invest  8.86  in AE on August 28, 2022 and sell it today you would lose (1.26)  from holding AE or give up 14.22% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

AE  vs.  Decred

 Performance (%) 
       Timeline  
AE 
AE Performance
0 of 100
Over the last 90 days AE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, AE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AE Price Channel

Decred 
Decred Performance
0 of 100
Over the last 90 days Decred has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's fundamental indicators remain somewhat strong which may send shares a bit higher in December 2022. The current disturbance may also be a sign of long term up-swing for Decred investors.

Decred Price Channel

AE and Decred Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with AE and Decred

The main advantage of trading using opposite AE and Decred positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AE position performs unexpectedly, Decred 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 Decred will offset losses from the drop in Decred's long position.
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The idea behind AE and Decred 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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