Correlation Between Ethereum and Polygon

Can any of the company-specific risk be diversified away by investing in both Ethereum and Polygon 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 Polygon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ethereum and Polygon, you can compare the effects of market volatilities on Ethereum and Polygon 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 Polygon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethereum and Polygon.

Diversification Opportunities for Ethereum and Polygon

0.73

Correlation Coefficient

Ethereum  Polygon

Poor diversification

The 3 months correlation between Ethereum and Polygon is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and Polygon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polygon 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 Polygon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polygon has no effect on the direction of Ethereum i.e., Ethereum and Polygon go up and down completely randomly.

Pair Corralation between Ethereum and Polygon

Assuming the 90 days trading horizon Ethereum is expected to generate 0.6 times more return on investment than Polygon. However, Ethereum is 1.68 times less risky than Polygon. It trades about -0.14 of its potential returns per unit of risk. Polygon is currently generating about -0.27 per unit of risk. If you would invest  358,760  in Ethereum on January 24, 2024 and sell it today you would lose (37,037) from holding Ethereum or give up 10.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Ethereum  vs.  Polygon

Ethereum

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, Ethereum exhibited solid returns over the last few months and may actually be approaching a breakup point.

Polygon

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Polygon are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Polygon may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Ethereum and Polygon

The main advantage of trading using opposite Ethereum and Polygon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethereum position performs unexpectedly, Polygon 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 Polygon will offset losses from the drop in Polygon's long position.

The idea behind Ethereum and Polygon 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.