Correlation Between COFI and XRP

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

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

Diversification Opportunities for COFI and XRP

0.62

Correlation Coefficient

COFI  XRP

Poor diversification

The 3 months correlation between COFI and XRP is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding COFI and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and COFI 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 COFI are associated (or correlated) with XRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XRP has no effect on the direction of COFI i.e., COFI and XRP go up and down completely randomly.

Pair Corralation between COFI and XRP

Assuming the 90 days trading horizon COFI is expected to under-perform the XRP. In addition to that, COFI is 2.41 times more volatile than XRP. It trades about -0.01 of its total potential returns per unit of risk. XRP is currently generating about 0.04 per unit of volatility. If you would invest  208.00  in XRP on December 29, 2024 and sell it today you would earn a total of  13.00  from holding XRP or generate 6.25% return on investment over 90 days.

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

COFI  vs.  XRP

COFI

Risk-Adjusted Performance

Very Weak

Over the last 90 days COFI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for COFI shareholders.

XRP

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XRP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XRP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with COFI and XRP

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

The idea behind COFI and XRP 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.