Correlation Between Solana and WETH

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

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

Diversification Opportunities for Solana and WETH

-0.45

Correlation Coefficient

Solana  WETH

Very good diversification

The 3 months correlation between Solana and WETH is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Solana and WETH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WETH 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 WETH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WETH has no effect on the direction of Solana i.e., Solana and WETH go up and down completely randomly.

Pair Corralation between Solana and WETH

Assuming the 90 days trading horizon Solana is expected to generate 0.54 times more return on investment than WETH. However, Solana is 1.85 times less risky than WETH. It trades about 0.24 of its potential returns per unit of risk. WETH is currently generating about 0.06 per unit of risk. If you would invest  3,165  in Solana on January 25, 2024 and sell it today you would earn a total of  12,310  from holding Solana or generate 388.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.22%
Values	Daily Returns

Solana  vs.  WETH

Solana

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solana are ranked lower than 15 (%) 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.

WETH

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WETH are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, WETH exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solana and WETH

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

The idea behind Solana and WETH 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.

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 the Technical Analysis module to check basic technical indicators and analysis based on most latest market data.