Correlation Between Wrapped Bitcoin and XRP

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

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

Diversification Opportunities for Wrapped Bitcoin and XRP

0.74

Correlation Coefficient

Wrapped Bitcoin  XRP

Poor diversification

The 3 months correlation between Wrapped and XRP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Wrapped Bitcoin and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and Wrapped Bitcoin 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 Wrapped Bitcoin 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 Wrapped Bitcoin i.e., Wrapped Bitcoin and XRP go up and down completely randomly.

Pair Corralation between Wrapped Bitcoin and XRP

Assuming the 90 days trading horizon Wrapped Bitcoin is expected to generate 0.85 times more return on investment than XRP. However, Wrapped Bitcoin is 1.18 times less risky than XRP. It trades about 0.23 of its potential returns per unit of risk. XRP is currently generating about 0.03 per unit of risk. If you would invest  4,202,713  in Wrapped Bitcoin on January 26, 2024 and sell it today you would earn a total of  2,443,756  from holding Wrapped Bitcoin or generate 58.15% return on investment over 90 days.

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

Wrapped Bitcoin  vs.  XRP

Wrapped Bitcoin

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wrapped Bitcoin are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Wrapped Bitcoin 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 Wrapped Bitcoin and XRP

The main advantage of trading using opposite Wrapped Bitcoin and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wrapped Bitcoin 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 Wrapped Bitcoin 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.