Correlation Between Solana and Cardano

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

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

Diversification Opportunities for Solana and Cardano

0.44

Correlation Coefficient

Solana  Cardano

Very weak diversification

The 3 months correlation between Solana and Cardano is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Solana and Cardano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardano and Solana 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 Solana are associated (or correlated) with Cardano. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardano has no effect on the direction of Solana i.e., Solana and Cardano go up and down completely randomly.

Pair Corralation between Solana and Cardano

Assuming the 90 days trading horizon Solana is expected to generate 0.89 times more return on investment than Cardano. However, Solana is 1.13 times less risky than Cardano. It trades about -0.15 of its potential returns per unit of risk. Cardano is currently generating about -0.19 per unit of risk. If you would invest  18,623  in Solana on January 26, 2024 and sell it today you would lose (3,148) from holding Solana or give up 16.9% of portfolio value over 90 days.

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

Solana  vs.  Cardano

Solana

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solana are ranked lower than 14 (%) 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.

Cardano

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Solana and Cardano

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

The idea behind Solana and Cardano 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.