Correlation Between Ethena and FRONT

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

By analyzing existing cross correlation between Ethena and FRONT, you can compare the effects of market volatilities on Ethena and FRONT 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 FRONT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethena and FRONT.

Diversification Opportunities for Ethena and FRONT

0.85

Correlation Coefficient

Ethena  FRONT

Very poor diversification

The 3 months correlation between Ethena and FRONT is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ethena and FRONT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FRONT 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 FRONT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FRONT has no effect on the direction of Ethena i.e., Ethena and FRONT go up and down completely randomly.

Pair Corralation between Ethena and FRONT

Assuming the 90 days trading horizon Ethena is expected to generate 1.06 times more return on investment than FRONT. However, Ethena is 1.06 times more volatile than FRONT. It trades about -0.12 of its potential returns per unit of risk. FRONT is currently generating about -0.19 per unit of risk. If you would invest  91.00  in Ethena on December 30, 2024 and sell it today you would lose (55.00) from holding Ethena or give up 60.44% of portfolio value over 90 days.

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

Ethena  vs.  FRONT

Ethena

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ethena has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Ethena shareholders.

FRONT

Risk-Adjusted Performance

Very Weak

Over the last 90 days FRONT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for FRONT shareholders.

Pair Trading with Ethena and FRONT

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

The idea behind Ethena and FRONT 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.