Correlation Between Polkadot and Ethereum

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

Diversification Opportunities for Polkadot and Ethereum

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Polkadot and Ethereum is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Polkadot and Ethereum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethereum and Polkadot 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 Polkadot are associated (or correlated) with Ethereum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethereum has no effect on the direction of Polkadot i.e., Polkadot and Ethereum go up and down completely randomly.

Pair Corralation between Polkadot and Ethereum

Assuming the 90 days trading horizon Polkadot is expected to generate 1.22 times more return on investment than Ethereum. However, Polkadot is 1.22 times more volatile than Ethereum. It trades about 0.44 of its potential returns per unit of risk. Ethereum is currently generating about 0.42 per unit of risk. If you would invest  463.00  in Polkadot on November 4, 2022 and sell it today you would earn a total of  184.00  from holding Polkadot or generate 39.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Polkadot  vs.  Ethereum

 Performance (%) 
       Timeline  
Polkadot 
Polkadot Performance
0 of 100
Over the last 90 days Polkadot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Polkadot is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Polkadot Price Channel

Ethereum 
Ethereum Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ethereum may actually be approaching a critical reversion point that can send shares even higher in March 2023.

Ethereum Price Channel

Polkadot and Ethereum Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Polkadot and Ethereum

The main advantage of trading using opposite Polkadot and Ethereum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polkadot position performs unexpectedly, Ethereum 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 Ethereum will offset losses from the drop in Ethereum's long position.
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The idea behind Polkadot and Ethereum 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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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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