Correlation Between Ethena and XRP

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

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

Diversification Opportunities for Ethena and XRP

-0.31

Correlation Coefficient

Ethena  XRP

Very good diversification

The 3 months correlation between Ethena and XRP is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Ethena and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and Ethena 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 Ethena 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 Ethena i.e., Ethena and XRP go up and down completely randomly.

Pair Corralation between Ethena and XRP

Assuming the 90 days trading horizon Ethena is expected to generate 49.81 times more return on investment than XRP. However, Ethena is 49.81 times more volatile than XRP. It trades about 0.21 of its potential returns per unit of risk. XRP is currently generating about -0.16 per unit of risk. If you would invest  0.00  in Ethena on January 31, 2024 and sell it today you would earn a total of  81.00  from holding Ethena or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Ethena  vs.  XRP

Ethena

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ethena are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ethena exhibited solid returns over the last few months and may actually be approaching a breakup point.

XRP

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Ethena and XRP

The main advantage of trading using opposite Ethena and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethena 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 Ethena 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.