Correlation Between XRP and DF

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

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

Diversification Opportunities for XRP and DF

0.27

Correlation Coefficient

XRP  DF

Modest diversification

The 3 months correlation between XRP and DF is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding XRP and DF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DF and XRP 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 XRP are associated (or correlated) with DF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DF has no effect on the direction of XRP i.e., XRP and DF go up and down completely randomly.

Pair Corralation between XRP and DF

Assuming the 90 days trading horizon XRP is expected to generate 4.2 times less return on investment than DF. But when comparing it to its historical volatility, XRP is 3.8 times less risky than DF. It trades about 0.05 of its potential returns per unit of risk. DF is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3.64  in DF on December 27, 2024 and sell it today you would lose (1.49) from holding DF or give up 40.93% of portfolio value over 90 days.

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

XRP  vs.  DF

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.

DF

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DF are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DF exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with XRP and DF

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

The idea behind XRP and DF 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.