Correlation Between Arbitrum and Polkadot

Can any of the company-specific risk be diversified away by investing in both Arbitrum and Polkadot 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 Arbitrum and Polkadot into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arbitrum and Polkadot, you can compare the effects of market volatilities on Arbitrum and Polkadot 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 Arbitrum with a short position of Polkadot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arbitrum and Polkadot.

Diversification Opportunities for Arbitrum and Polkadot

0.97

Correlation Coefficient

Arbitrum  Polkadot

Almost no diversification

The 3 months correlation between Arbitrum and Polkadot is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Arbitrum and Polkadot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polkadot and Arbitrum 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 Arbitrum are associated (or correlated) with Polkadot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polkadot has no effect on the direction of Arbitrum i.e., Arbitrum and Polkadot go up and down completely randomly.

Pair Corralation between Arbitrum and Polkadot

Assuming the 90 days trading horizon Arbitrum is expected to generate 1.13 times less return on investment than Polkadot. In addition to that, Arbitrum is 1.0 times more volatile than Polkadot. It trades about 0.21 of its total potential returns per unit of risk. Polkadot is currently generating about 0.24 per unit of volatility. If you would invest  406.00  in Polkadot on September 2, 2024 and sell it today you would earn a total of  489.00  from holding Polkadot or generate 120.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Arbitrum  vs.  Polkadot

Arbitrum

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arbitrum are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Arbitrum exhibited solid returns over the last few months and may actually be approaching a breakup point.

Polkadot

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Polkadot are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Polkadot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arbitrum and Polkadot

The main advantage of trading using opposite Arbitrum and Polkadot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arbitrum position performs unexpectedly, Polkadot 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 Polkadot will offset losses from the drop in Polkadot's long position.

The idea behind Arbitrum and Polkadot 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.