Correlation Between Ethereum and Cardano
Can any of the company-specific risk be diversified away by investing in both Ethereum and Cardano 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 Ethereum and Cardano into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ethereum and Cardano, you can compare the effects of market volatilities on Ethereum and Cardano 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 Ethereum with a short position of Cardano. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethereum and Cardano.
Diversification Opportunities for Ethereum and Cardano
Very poor diversification
The 3 months correlation between Ethereum and Cardano is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and Cardano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardano and Ethereum 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 Ethereum are associated (or correlated) with Cardano. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardano has no effect on the direction of Ethereum i.e., Ethereum and Cardano go up and down completely randomly.
Pair Corralation between Ethereum and Cardano
Assuming the 90 days trading horizon Ethereum is expected to under-perform the Cardano. But the crypto coin apears to be less risky and, when comparing its historical volatility, Ethereum is 1.6 times less risky than Cardano. The crypto coin trades about -0.03 of its potential returns per unit of risk. The Cardano is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 74.00 in Cardano on November 18, 2024 and sell it today you would earn a total of 4.00 from holding Cardano or generate 5.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ethereum vs. Cardano
Performance |
| Timeline |
| Ethereum |
| Cardano |
Ethereum and Cardano Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ethereum and Cardano
The main advantage of trading using opposite Ethereum and Cardano positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethereum position performs unexpectedly, Cardano 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 Cardano will offset losses from the drop in Cardano's long position.The idea behind Ethereum and Cardano 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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