Correlation Between XRP and Avalanche

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

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

Diversification Opportunities for XRP and Avalanche

0.86

Correlation Coefficient

XRP  Avalanche

Very poor diversification

The 3 months correlation between XRP and Avalanche is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding XRP and Avalanche in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalanche and XRP 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 XRP are associated (or correlated) with Avalanche. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalanche has no effect on the direction of XRP i.e., XRP and Avalanche go up and down completely randomly.

Pair Corralation between XRP and Avalanche

Assuming the 90 days trading horizon XRP is expected to under-perform the Avalanche. But the crypto coin apears to be less risky and, when comparing its historical volatility, XRP is 1.57 times less risky than Avalanche. The crypto coin trades about -0.01 of its potential returns per unit of risk. The Avalanche is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,926  in Avalanche on January 25, 2024 and sell it today you would lose (110.00) from holding Avalanche or give up 2.8% of portfolio value over 90 days.

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

XRP  vs.  Avalanche

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.

Avalanche

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Avalanche exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with XRP and Avalanche

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

The idea behind XRP and Avalanche 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.