Correlation Between Wrapped Bitcoin and Ethena

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

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

Diversification Opportunities for Wrapped Bitcoin and Ethena

0.66

Correlation Coefficient

Wrapped Bitcoin  Ethena

Poor diversification

The 3 months correlation between Wrapped and Ethena is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Wrapped Bitcoin and Ethena in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethena and Wrapped Bitcoin 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 Wrapped Bitcoin are associated (or correlated) with Ethena. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethena has no effect on the direction of Wrapped Bitcoin i.e., Wrapped Bitcoin and Ethena go up and down completely randomly.

Pair Corralation between Wrapped Bitcoin and Ethena

Assuming the 90 days trading horizon Wrapped Bitcoin is expected to generate 0.27 times more return on investment than Ethena. However, Wrapped Bitcoin is 3.68 times less risky than Ethena. It trades about -0.07 of its potential returns per unit of risk. Ethena is currently generating about -0.12 per unit of risk. If you would invest  9,321,454  in Wrapped Bitcoin on December 30, 2024 and sell it today you would lose (1,086,636) from holding Wrapped Bitcoin or give up 11.66% of portfolio value over 90 days.

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

Wrapped Bitcoin  vs.  Ethena

Wrapped Bitcoin

Risk-Adjusted Performance

Very Weak

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

Ethena

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ethena 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 Ethena shareholders.

Pair Trading with Wrapped Bitcoin and Ethena

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

The idea behind Wrapped Bitcoin and Ethena 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.