Correlation Between Ethereum and Europe ETF

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Can any of the company-specific risk be diversified away by investing in both Ethereum and Europe ETF 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 and Europe ETF into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ethereum and Europe ETF FTSE, you can compare the effects of market volatilities on Ethereum and Europe ETF 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 with a short position of Europe ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethereum and Europe ETF.

Diversification Opportunities for Ethereum and Europe ETF

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Ethereum and Europe is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and Europe ETF FTSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europe ETF FTSE and 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 Ethereum are associated (or correlated) with Europe ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europe ETF FTSE has no effect on the direction of Ethereum i.e., Ethereum and Europe ETF go up and down completely randomly.

Pair Corralation between Ethereum and Europe ETF

Assuming the 90 days trading horizon Ethereum is expected to generate 4.99 times more return on investment than Europe ETF. However, Ethereum is 4.99 times more volatile than Europe ETF FTSE. It trades about 0.07 of its potential returns per unit of risk. Europe ETF FTSE is currently generating about 0.0 per unit of risk. If you would invest  37,770  in Ethereum on July 6, 2022 and sell it today you would earn a total of  93,410  from holding Ethereum or generate 247.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy96.88%
ValuesDaily Returns

Ethereum  vs.  Europe ETF FTSE

 Performance (%) 
       Timeline  
Ethereum 
Ethereum Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ethereum sustained solid returns over the last few months and may actually be approaching a breakup point.

Ethereum Price Channel

Europe ETF FTSE 
Europe Performance
0 of 100
Over the last 90 days Europe ETF FTSE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Europe ETF is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Europe Price Channel

Ethereum and Europe ETF Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ethereum and Europe ETF

The main advantage of trading using opposite Ethereum and Europe ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethereum position performs unexpectedly, Europe ETF 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 Europe ETF will offset losses from the drop in Europe ETF's long position.
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The idea behind Ethereum and Europe ETF FTSE 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Europe ETF as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Europe ETF's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Europe ETF's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Europe ETF FTSE.
Check out your portfolio center. 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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