Correlation Between Arbitrum and Solana

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

Diversification Opportunities for Arbitrum and Solana

-0.35
  Correlation Coefficient

Very good diversification

The 3 months correlation between Arbitrum and Solana is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Arbitrum and Solana in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solana and Arbitrum 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 Arbitrum are associated (or correlated) with Solana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solana has no effect on the direction of Arbitrum i.e., Arbitrum and Solana go up and down completely randomly.

Pair Corralation between Arbitrum and Solana

Assuming the 90 days trading horizon Arbitrum is expected to under-perform the Solana. In addition to that, Arbitrum is 1.42 times more volatile than Solana. It trades about -0.21 of its total potential returns per unit of risk. Solana is currently generating about -0.22 per unit of volatility. If you would invest  19,047  in Solana on January 23, 2024 and sell it today you would lose (3,919) from holding Solana or give up 20.58% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Arbitrum  vs.  Solana

 Performance 
       Timeline  
Arbitrum 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Arbitrum 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 fundamental drivers remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for Arbitrum shareholders.
Solana 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Solana are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Solana exhibited solid returns over the last few months and may actually be approaching a breakup point.

Arbitrum and Solana Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Arbitrum and Solana

The main advantage of trading using opposite Arbitrum and Solana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arbitrum position performs unexpectedly, Solana 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 Solana will offset losses from the drop in Solana's long position.
The idea behind Arbitrum and Solana 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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