Correlation Between Flare and EGold

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

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

Diversification Opportunities for Flare and EGold

0.42

Correlation Coefficient

Flare  EGold

Very weak diversification

The 3 months correlation between Flare and EGold is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Flare and eGold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eGold and Flare 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 Flare are associated (or correlated) with EGold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eGold has no effect on the direction of Flare i.e., Flare and EGold go up and down completely randomly.

Pair Corralation between Flare and EGold

Assuming the 90 days trading horizon Flare is expected to generate 0.71 times more return on investment than EGold. However, Flare is 1.42 times less risky than EGold. It trades about -0.25 of its potential returns per unit of risk. eGold is currently generating about -0.24 per unit of risk. If you would invest  3.82  in Flare on January 29, 2024 and sell it today you would lose (0.79) from holding Flare or give up 20.68% of portfolio value over 90 days.

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

Flare  vs.  eGold

Flare

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Flare exhibited solid returns over the last few months and may actually be approaching a breakup point.

eGold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days eGold 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 eGold shareholders.

Pair Trading with Flare and EGold

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

The idea behind Flare and eGold 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.