Correlation Between Ethena and SCRT

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

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

Diversification Opportunities for Ethena and SCRT

0.72

Correlation Coefficient

Ethena  SCRT

Poor diversification

The 3 months correlation between Ethena and SCRT is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Ethena and SCRT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCRT 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 SCRT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCRT has no effect on the direction of Ethena i.e., Ethena and SCRT go up and down completely randomly.

Pair Corralation between Ethena and SCRT

Assuming the 90 days trading horizon Ethena is expected to generate 0.87 times more return on investment than SCRT. However, Ethena is 1.15 times less risky than SCRT. It trades about 0.18 of its potential returns per unit of risk. SCRT is currently generating about 0.16 per unit of risk. If you would invest  39.00  in Ethena on October 21, 2024 and sell it today you would earn a total of  57.00  from holding Ethena or generate 146.15% return on investment over 90 days.

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

Ethena  vs.  SCRT

Ethena

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ethena are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ethena exhibited solid returns over the last few months and may actually be approaching a breakup point.

SCRT

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SCRT are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SCRT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ethena and SCRT

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

The idea behind Ethena and SCRT 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.