Correlation Between Ethena and NEO
Can any of the company-specific risk be diversified away by investing in both Ethena and NEO 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 NEO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ethena and NEO, you can compare the effects of market volatilities on Ethena and NEO 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 NEO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethena and NEO.
Diversification Opportunities for Ethena and NEO
Very poor diversification
The 3 months correlation between Ethena and NEO is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Ethena and NEO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEO 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 NEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEO has no effect on the direction of Ethena i.e., Ethena and NEO go up and down completely randomly.
Pair Corralation between Ethena and NEO
Assuming the 90 days trading horizon Ethena is expected to generate 2.59 times more return on investment than NEO. However, Ethena is 2.59 times more volatile than NEO. It trades about 0.41 of its potential returns per unit of risk. NEO is currently generating about 0.63 per unit of risk. If you would invest 36.00 in Ethena on September 2, 2024 and sell it today you would earn a total of 48.00 from holding Ethena or generate 133.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ethena vs. NEO
Performance |
| Timeline |
| Ethena |
| NEO |
Ethena and NEO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ethena and NEO
The main advantage of trading using opposite Ethena and NEO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethena position performs unexpectedly, NEO 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 NEO will offset losses from the drop in NEO's long position.The idea behind Ethena and NEO 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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