Correlation Between Cosmos and Numeraire
Can any of the company-specific risk be diversified away by investing in both Cosmos and Numeraire 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 Cosmos and Numeraire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cosmos and Numeraire, you can compare the effects of market volatilities on Cosmos and Numeraire 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 Cosmos with a short position of Numeraire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cosmos and Numeraire.
Diversification Opportunities for Cosmos and Numeraire
Very poor diversification
The 3 months correlation between Cosmos and Numeraire is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cosmos and Numeraire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Numeraire and Cosmos 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 Cosmos are associated (or correlated) with Numeraire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Numeraire has no effect on the direction of Cosmos i.e., Cosmos and Numeraire go up and down completely randomly.
Pair Corralation between Cosmos and Numeraire
Assuming the 90 days trading horizon Cosmos is expected to under-perform the Numeraire. But the crypto coin apears to be less risky and, when comparing its historical volatility, Cosmos is 1.43 times less risky than Numeraire. The crypto coin trades about -0.29 of its potential returns per unit of risk. The Numeraire is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest 3,504 in Numeraire on January 20, 2024 and sell it today you would lose (1,012) from holding Numeraire or give up 28.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cosmos vs. Numeraire
Performance |
| Timeline |
| Cosmos |
| Numeraire |
Cosmos and Numeraire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cosmos and Numeraire
The main advantage of trading using opposite Cosmos and Numeraire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cosmos position performs unexpectedly, Numeraire 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 Numeraire will offset losses from the drop in Numeraire's long position.The idea behind Cosmos and Numeraire 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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