# Correlation Between Solana and Polkadot

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

## Diversification Opportunities for Solana and Polkadot

 0.99 Correlation Coefficient

### No risk reduction

The 3 months correlation between Solana and Polkadot is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Solana and Polkadot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polkadot 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 Polkadot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polkadot has no effect on the direction of Solana i.e., Solana and Polkadot go up and down completely randomly.

## Pair Corralation between Solana and Polkadot

Assuming the 90 days trading horizon Solana is expected to under-perform the Polkadot. In addition to that, Solana is 1.1 times more volatile than Polkadot. It trades about -0.19 of its total potential returns per unit of risk. Polkadot is currently generating about -0.17 per unit of volatility. If you would invest  1,432  in Polkadot on April 5, 2022 and sell it today you would lose (750.00)  from holding Polkadot or give up 52.37% of portfolio value over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Very Strong Accuracy 100.0% Values Daily Returns

 Performance (%)
 Timeline
 Solana Correlation Profile
Solana Performance
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Over the last 90 days Solana has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's basic indicators remain somewhat strong which may send shares a bit higher in August 2022. The current disturbance may also be a sign of long term up-swing for Solana investors.

### Solana Price Channel

 Performance Backtest
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Over the last 90 days Polkadot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's basic indicators remain somewhat strong which may send shares a bit higher in August 2022. The current disturbance may also be a sign of long term up-swing for Polkadot investors.

 Performance Backtest

## Solana and Polkadot Volatility Contrast

 Predicted Return Density
 Returns

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

## Solana

### Pair trading matchups for Solana

The idea behind Solana and Polkadot 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.