Correlation Between Arbitrum and XRP

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

Diversification Opportunities for Arbitrum and XRP

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Arbitrum and XRP is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Arbitrum and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP 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 XRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XRP has no effect on the direction of Arbitrum i.e., Arbitrum and XRP go up and down completely randomly.

Pair Corralation between Arbitrum and XRP

Assuming the 90 days trading horizon Arbitrum is expected to under-perform the XRP. In addition to that, Arbitrum is 1.19 times more volatile than XRP. It trades about -0.21 of its total potential returns per unit of risk. XRP is currently generating about -0.04 per unit of volatility. If you would invest  56.00  in XRP on January 20, 2024 and sell it today you would lose (6.00) from holding XRP or give up 10.71% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Arbitrum  vs.  XRP

 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.
XRP 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days XRP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, XRP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Arbitrum and XRP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Arbitrum and XRP

The main advantage of trading using opposite Arbitrum and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arbitrum position performs unexpectedly, XRP 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 XRP will offset losses from the drop in XRP's long position.
The idea behind Arbitrum and XRP 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.

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