Correlation Between Solana and XRP

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

Diversification Opportunities for Solana and XRP

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Solana and XRP is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Solana and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP 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 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 Solana i.e., Solana and XRP go up and down completely randomly.

Pair Corralation between Solana and XRP

Assuming the 90 days trading horizon Solana is expected to generate 1.25 times more return on investment than XRP. However, Solana is 1.25 times more volatile than XRP. It trades about 0.33 of its potential returns per unit of risk. XRP is currently generating about 0.13 per unit of risk. If you would invest  10,140  in Solana on December 29, 2023 and sell it today you would earn a total of  8,479  from holding Solana or generate 83.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Solana  vs.  XRP

 Performance 
       Timeline  
Solana 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Solana are ranked lower than 17 (%) 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.
XRP 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days XRP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, XRP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Solana and XRP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Solana and XRP

The main advantage of trading using opposite Solana and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solana 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 Solana 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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