Correlation Between Ethereum and TerraClassicUSD

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

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

Diversification Opportunities for Ethereum and TerraClassicUSD

0.63

Correlation Coefficient

Ethereum  TerraClassicUSD

Poor diversification

The 3 months correlation between Ethereum and TerraClassicUSD is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and TerraClassicUSD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TerraClassicUSD 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 TerraClassicUSD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TerraClassicUSD has no effect on the direction of Ethereum i.e., Ethereum and TerraClassicUSD go up and down completely randomly.

Pair Corralation between Ethereum and TerraClassicUSD

Assuming the 90 days trading horizon Ethereum is expected to generate 0.88 times more return on investment than TerraClassicUSD. However, Ethereum is 1.13 times less risky than TerraClassicUSD. It trades about 0.33 of its potential returns per unit of risk. TerraClassicUSD is currently generating about 0.09 per unit of risk. If you would invest  265,835  in Ethereum on August 30, 2024 and sell it today you would earn a total of  99,383  from holding Ethereum or generate 37.39% return on investment over 90 days.

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

Ethereum  vs.  TerraClassicUSD

Ethereum

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, Ethereum exhibited solid returns over the last few months and may actually be approaching a breakup point.

TerraClassicUSD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TerraClassicUSD are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, TerraClassicUSD exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ethereum and TerraClassicUSD

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

The idea behind Ethereum and TerraClassicUSD 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .