Correlation Between Ethena and Arbitrum
Can any of the company-specific risk be diversified away by investing in both Ethena and Arbitrum 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 Ethena and Arbitrum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ethena and Arbitrum, you can compare the effects of market volatilities on Ethena and Arbitrum 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 Ethena with a short position of Arbitrum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethena and Arbitrum.
Diversification Opportunities for Ethena and Arbitrum
Very poor diversification
The 3 months correlation between Ethena and Arbitrum is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Ethena and Arbitrum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrum and Ethena 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 Ethena are associated (or correlated) with Arbitrum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrum has no effect on the direction of Ethena i.e., Ethena and Arbitrum go up and down completely randomly.
Pair Corralation between Ethena and Arbitrum
Assuming the 90 days trading horizon Ethena is expected to generate 1.51 times more return on investment than Arbitrum. However, Ethena is 1.51 times more volatile than Arbitrum. It trades about 0.34 of its potential returns per unit of risk. Arbitrum is currently generating about 0.38 per unit of risk. If you would invest 36.00 in Ethena on August 30, 2024 and sell it today you would earn a total of 35.00 from holding Ethena or generate 97.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ethena vs. Arbitrum
Performance |
| Timeline |
| Ethena |
| Arbitrum |
Ethena and Arbitrum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ethena and Arbitrum
The main advantage of trading using opposite Ethena and Arbitrum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethena position performs unexpectedly, Arbitrum 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 Arbitrum will offset losses from the drop in Arbitrum's long position.The idea behind Ethena and Arbitrum 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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