Correlation Between Grayscale Ethereum and Grayscale Digital

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

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

Diversification Opportunities for Grayscale Ethereum and Grayscale Digital

0.9

Correlation Coefficient

Grayscale Ethereum  Grayscale Digital

Almost no diversification

The 3 months correlation between Grayscale and Grayscale is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Grayscale Ethereum Trust and Grayscale Digital Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grayscale Digital Large and Grayscale 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 Grayscale Ethereum Trust are associated (or correlated) with Grayscale Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grayscale Digital Large has no effect on the direction of Grayscale Ethereum i.e., Grayscale Ethereum and Grayscale Digital go up and down completely randomly.

Pair Corralation between Grayscale Ethereum and Grayscale Digital

Given the investment horizon of 90 days Grayscale Ethereum is expected to generate 2.05 times less return on investment than Grayscale Digital. But when comparing it to its historical volatility, Grayscale Ethereum Trust is 1.04 times less risky than Grayscale Digital. It trades about 0.16 of its potential returns per unit of risk. Grayscale Digital Large is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  1,851  in Grayscale Digital Large on September 2, 2024 and sell it today you would earn a total of  2,379  from holding Grayscale Digital Large or generate 128.53% return on investment over 90 days.

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

Grayscale Ethereum Trust  vs.  Grayscale Digital Large

Grayscale Ethereum Trust

Risk-Adjusted Performance

12 of 100

Good

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

Grayscale Digital Large

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Grayscale Digital Large are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Grayscale Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Grayscale Ethereum and Grayscale Digital

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

The idea behind Grayscale Ethereum Trust and Grayscale Digital Large 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.