Correlation Between Ethereum and XRP

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

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

Diversification Opportunities for Ethereum and XRP

0.85

Correlation Coefficient

Ethereum  XRP

Very poor diversification

The 3 months correlation between Ethereum and XRP is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP 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 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 Ethereum i.e., Ethereum and XRP go up and down completely randomly.

Pair Corralation between Ethereum and XRP

Assuming the 90 days trading horizon Ethereum is expected to generate 0.96 times more return on investment than XRP. However, Ethereum is 1.04 times less risky than XRP. It trades about 0.16 of its potential returns per unit of risk. XRP is currently generating about 0.03 per unit of risk. If you would invest  226,797  in Ethereum on January 26, 2024 and sell it today you would earn a total of  93,856  from holding Ethereum or generate 41.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Ethereum  vs.  XRP

Ethereum

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 12 (%) 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.

XRP

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Ethereum and XRP

The main advantage of trading using opposite Ethereum and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethereum 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 Ethereum 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.