Correlation Between Ethereum PoW and Litecoin

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

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

Diversification Opportunities for Ethereum PoW and Litecoin

0.65

Correlation Coefficient

Ethereum PoW  Litecoin

Poor diversification

The 3 months correlation between Ethereum and Litecoin is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum PoW and Litecoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litecoin and Ethereum PoW 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 PoW are associated (or correlated) with Litecoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litecoin has no effect on the direction of Ethereum PoW i.e., Ethereum PoW and Litecoin go up and down completely randomly.

Pair Corralation between Ethereum PoW and Litecoin

Assuming the 90 days trading horizon Ethereum PoW is expected to generate 1.72 times more return on investment than Litecoin. However, Ethereum PoW is 1.72 times more volatile than Litecoin. It trades about 0.24 of its potential returns per unit of risk. Litecoin is currently generating about 0.19 per unit of risk. If you would invest  169.00  in Ethereum PoW on September 1, 2024 and sell it today you would earn a total of  280.00  from holding Ethereum PoW or generate 165.68% return on investment over 90 days.

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

Ethereum PoW  vs.  Litecoin

Ethereum PoW

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum PoW are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Ethereum PoW exhibited solid returns over the last few months and may actually be approaching a breakup point.

Litecoin

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Ethereum PoW and Litecoin

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

The idea behind Ethereum PoW and Litecoin 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.