Correlation Between Ethereum and Polkadot

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

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

Diversification Opportunities for Ethereum and Polkadot

0.92

Correlation Coefficient

Ethereum  Polkadot

Almost no diversification

The 3 months correlation between Ethereum and Polkadot is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and Polkadot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polkadot and Ethereum 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 Ethereum 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 Ethereum i.e., Ethereum and Polkadot go up and down completely randomly.

Pair Corralation between Ethereum and Polkadot

Assuming the 90 days trading horizon Ethereum is expected to under-perform the Polkadot. But the crypto coin apears to be less risky and, when comparing its historical volatility, Ethereum is 1.68 times less risky than Polkadot. The crypto coin trades about -0.03 of its potential returns per unit of risk. The Polkadot is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  572.00  in Polkadot on November 19, 2024 and sell it today you would lose (70.00) from holding Polkadot or give up 12.24% of portfolio value over 90 days.

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

Ethereum  vs.  Polkadot

Ethereum

Risk-Adjusted Performance

Very Weak

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

Polkadot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Polkadot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Polkadot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ethereum and Polkadot

The main advantage of trading using opposite Ethereum and Polkadot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethereum 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 Ethereum 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.