Correlation Between EMC2 and Litecoin
Can any of the company-specific risk be diversified away by investing in both EMC2 and Litecoin 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 EMC2 and Litecoin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EMC2 and Litecoin, you can compare the effects of market volatilities on EMC2 and Litecoin 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 EMC2 with a short position of Litecoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of EMC2 and Litecoin.
Diversification Opportunities for EMC2 and Litecoin
Very weak diversification
The 3 months correlation between EMC2 and Litecoin is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding EMC2 and Litecoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litecoin and EMC2 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 EMC2 are associated (or correlated) with Litecoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litecoin has no effect on the direction of EMC2 i.e., EMC2 and Litecoin go up and down completely randomly.
Pair Corralation between EMC2 and Litecoin
Assuming the 90 days trading horizon EMC2 is expected to under-perform the Litecoin. But the crypto coin apears to be less risky and, when comparing its historical volatility, EMC2 is 1.97 times less risky than Litecoin. The crypto coin trades about -0.04 of its potential returns per unit of risk. The Litecoin is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 10,994 in Litecoin on November 28, 2024 and sell it today you would earn a total of 534.00 from holding Litecoin or generate 4.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
EMC2 vs. Litecoin
Performance |
| Timeline |
| EMC2 |
| Litecoin |
EMC2 and Litecoin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EMC2 and Litecoin
The main advantage of trading using opposite EMC2 and Litecoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMC2 position performs unexpectedly, Litecoin 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 Litecoin will offset losses from the drop in Litecoin's long position.The idea behind EMC2 and Litecoin 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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