Correlation Between NEO and Decred
Can any of the company-specific risk be diversified away by investing in both NEO 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 NEO and Decred into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEO and Decred, you can compare the effects of market volatilities on NEO 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 NEO with a short position of Decred. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEO and Decred.
Diversification Opportunities for NEO and Decred
Poor diversification
The 3 months correlation between NEO and Decred is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NEO and Decred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decred and NEO 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 NEO 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 NEO i.e., NEO and Decred go up and down completely randomly.
Pair Corralation between NEO and Decred
Assuming the 90 days trading horizon NEO is expected to generate 1.18 times more return on investment than Decred. However, NEO is 1.18 times more volatile than Decred. It trades about 0.15 of its potential returns per unit of risk. Decred is currently generating about 0.08 per unit of risk. If you would invest 1,270 in NEO on January 20, 2024 and sell it today you would earn a total of 594.00 from holding NEO or generate 46.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NEO vs. Decred
Performance |
| Timeline |
| NEO |
| Decred |
NEO and Decred Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NEO and Decred
The main advantage of trading using opposite NEO and Decred positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEO 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.The idea behind NEO 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.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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
Other Complementary Tools
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Transaction History View history of all your transactions and understand their impact on performance | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| CEOs Directory Screen CEOs from public companies around the world | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities |