Correlation Between XRP and BCD
Can any of the company-specific risk be diversified away by investing in both XRP and BCD 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 BCD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between XRP and BCD, you can compare the effects of market volatilities on XRP and BCD 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 BCD. Check out your portfolio center. Please also check ongoing floating volatility patterns of XRP and BCD.
Diversification Opportunities for XRP and BCD
Poor diversification
The 3 months correlation between XRP and BCD is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding XRP and BCD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCD 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 BCD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCD has no effect on the direction of XRP i.e., XRP and BCD go up and down completely randomly.
Pair Corralation between XRP and BCD
Assuming the 90 days trading horizon XRP is expected to generate 0.76 times more return on investment than BCD. However, XRP is 1.32 times less risky than BCD. It trades about -0.08 of its potential returns per unit of risk. BCD is currently generating about -0.22 per unit of risk. If you would invest 61.00 in XRP on January 26, 2024 and sell it today you would lose (6.00) from holding XRP or give up 9.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
XRP vs. BCD
Performance |
| Timeline |
| XRP |
| BCD |
XRP and BCD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with XRP and BCD
The main advantage of trading using opposite XRP and BCD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XRP position performs unexpectedly, BCD 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 BCD will offset losses from the drop in BCD's long position.The idea behind XRP and BCD 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.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 the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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