Correlation Between Chainlink and Ethereum

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

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

Diversification Opportunities for Chainlink and Ethereum

0.51

Correlation Coefficient

Chainlink  Ethereum

Very weak diversification

The 3 months correlation between Chainlink and Ethereum is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Chainlink and Ethereum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethereum and Chainlink 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 Chainlink are associated (or correlated) with Ethereum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethereum has no effect on the direction of Chainlink i.e., Chainlink and Ethereum go up and down completely randomly.

Pair Corralation between Chainlink and Ethereum

Assuming the 90 days trading horizon Chainlink is expected to generate 1.61 times more return on investment than Ethereum. However, Chainlink is 1.61 times more volatile than Ethereum. It trades about 0.11 of its potential returns per unit of risk. Ethereum is currently generating about 0.1 per unit of risk. If you would invest  589.00  in Chainlink on January 24, 2024 and sell it today you would earn a total of  959.00  from holding Chainlink or generate 162.82% return on investment over 90 days.

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

Chainlink  vs.  Ethereum

Chainlink

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chainlink are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Chainlink exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ethereum

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, Ethereum exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chainlink and Ethereum

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

The idea behind Chainlink and Ethereum 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.