Correlation Between HOT and XRP

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

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

Diversification Opportunities for HOT and XRP

0.4

Correlation Coefficient

HOT  XRP

Very weak diversification

The 3 months correlation between HOT and XRP is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding HOT and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and HOT 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 HOT are associated (or correlated) with XRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XRP has no effect on the direction of HOT i.e., HOT and XRP go up and down completely randomly.

Pair Corralation between HOT and XRP

Assuming the 90 days trading horizon HOT is expected to under-perform the XRP. In addition to that, HOT is 1.03 times more volatile than XRP. It trades about -0.19 of its total potential returns per unit of risk. XRP is currently generating about 0.05 per unit of volatility. If you would invest  218.00  in XRP on December 27, 2024 and sell it today you would earn a total of  16.00  from holding XRP or generate 7.34% return on investment over 90 days.

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

HOT  vs.  XRP

HOT

Risk-Adjusted Performance

Very Weak

Over the last 90 days HOT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for HOT shareholders.

XRP

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XRP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XRP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HOT and XRP

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

The idea behind HOT and XRP 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.