Correlation Between XRP and CMT
Can any of the company-specific risk be diversified away by investing in both XRP and CMT 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 XRP and CMT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between XRP and CMT, you can compare the effects of market volatilities on XRP and CMT 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 XRP with a short position of CMT. Check out your portfolio center. Please also check ongoing floating volatility patterns of XRP and CMT.
Diversification Opportunities for XRP and CMT
Very poor diversification
The 3 months correlation between XRP and CMT is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding XRP and CMT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMT and XRP 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 XRP are associated (or correlated) with CMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMT has no effect on the direction of XRP i.e., XRP and CMT go up and down completely randomly.
Pair Corralation between XRP and CMT
Assuming the 90 days trading horizon XRP is expected to generate 1.09 times less return on investment than CMT. But when comparing it to its historical volatility, XRP is 1.33 times less risky than CMT. It trades about 0.11 of its potential returns per unit of risk. CMT is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 0.24 in CMT on August 26, 2024 and sell it today you would earn a total of 0.54 from holding CMT or generate 229.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
XRP vs. CMT
Performance |
| Timeline |
| XRP |
| CMT |
XRP and CMT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with XRP and CMT
The main advantage of trading using opposite XRP and CMT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XRP position performs unexpectedly, CMT 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 CMT will offset losses from the drop in CMT's long position.The idea behind XRP and CMT 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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