Correlation Between Ethena and Lido DAO
Can any of the company-specific risk be diversified away by investing in both Ethena and Lido DAO 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 Lido DAO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ethena and Lido DAO, you can compare the effects of market volatilities on Ethena and Lido DAO 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 Lido DAO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethena and Lido DAO.
Diversification Opportunities for Ethena and Lido DAO
Poor diversification
The 3 months correlation between Ethena and Lido is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ethena and Lido DAO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lido DAO 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 Lido DAO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lido DAO has no effect on the direction of Ethena i.e., Ethena and Lido DAO go up and down completely randomly.
Pair Corralation between Ethena and Lido DAO
Assuming the 90 days trading horizon Ethena is expected to generate 1.0 times more return on investment than Lido DAO. However, Ethena is 1.01 times less risky than Lido DAO. It trades about 0.33 of its potential returns per unit of risk. Lido DAO is currently generating about 0.21 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 | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ethena vs. Lido DAO
Performance |
| Timeline |
| Ethena |
| Lido DAO |
Ethena and Lido DAO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ethena and Lido DAO
The main advantage of trading using opposite Ethena and Lido DAO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethena position performs unexpectedly, Lido DAO 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 Lido DAO will offset losses from the drop in Lido DAO's long position.The idea behind Ethena and Lido DAO 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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